Eastside Primetimers have published our latest Good Merger Index, our comprehensive look at charity mergers and consolidation activity. This marks the fifth year of this report.
In 2017/2018 we saw 81 mergers take place. This represents a small increase on the 70 we saw in 2016/2017, but comes in the context of a sector with 168,000 registered charities.
59% of charities that were acting as the acquiring partner (transferees) were in position of financial surplus as they undertook their merger, with an average surplus (profit) margin of 3%. However amongst organisations seeking to be taken over or engaging in merger with a similar-sized organisation, 57% were in deficit and the average operating margin was -17%. While there are anecdotal exceptions, these figures are a reminder that financial hardships are a significant driver of the mergers that do occur.
Correlating with these financial difficulties, we also see an environment in which takeovers dominate to a greater degree than last year, as opposed to mergers of equals. Takeovers represented 69% of mergers in 2017/18, up from 56% in the previous Index. True mergers of equals represented only 21% of mergers in 2017/18, down from 29% the previous year.
We also seek to highlight prominent “sector hotspots” of merger activity and the unique factors that weigh on the leaders of organisations in these specialist fields as they consider whether to consolidate their efforts with those of like-minded organisations.
Infrastructure bodies that provide funding, support or representation for frontline charities represented 11% of mergers in 2017/18 – despite their crucial role in assisting the sector to raise funds and innovate in trying times, these organisations themselves can face challenges and are seeking to respond to them. We also look at medical charities, some of which have found that mergers can reduce competition for funding, pool research efforts or link research up with support. These accounted for 10% of 2017/18 mergers, including the merger that formed Versus Arthritis, the third largest deal of the year.
Finally, we make six recommendations for the sector:
- Charity managers and boards should take on regular examination of merger and collaboration as a duty
- The Charity Commission should consider stronger guidance and taking on a role in actively tracking and shaping merger activity
- The voluntary sector should introduce a Merger Code, sponsored by sector infrastructure bodies and voluntarily adopted by charity boards
- More guidance, diagnostic tools, workshops and grants should be available for charities
- Sector infrastructure bodies and funders should make more funding and support available, potentially incorporating a social finance element
- The social impact of mergers should be more effectively researched and measured
We’re keen to hear feedback from you on the Good Merger Index – you can contact us here.