This week saw the launch of our new research report, the Good Merger Index, which confirms that the number of not-for-profit organisations engaging and participating in mergers continues to be negligible. Dave Garratt, Director of Governance and Mergers, shares his thoughts on the launch of the new research and the launch on 29th January 2020.

With 168,000 registered charities in the sector, and more including social enterprises, only 58 mergers were completed from 30th April 2018 – 1st May 2019; at the lower end of the “normal” range of 55-75 we are used to seeing. Similarly, the trends of organisations merging, or being taken over, while in financial “distress” continues, with 69% of transferees in surplus, and over half of transferors in deficit.

A more qualitative approach?

These trends have continued for the six years of the Good Merger Index, so it has always been important for us to consider the barriers for organisations in approaching the ‘fearful’ topic of mergers. The GMI’s qualitative research, and our experience of managing around 20-30 merger projects a year, show these barriers to be complex, diverse, interlinked and of course highly dependent on circumstance. Nevertheless, a fair summary of these barriers would be:

  • Knowledge: social sector mergers are rare, so knowledge about how to find a partner and go about a merger, or what the potential benefits are, is far from widespread.
  • Reputation: the numbers show many (but far from all) mergers are driven by financial necessity, so merger is viewed as a ‘badge of failure’
  • Fear: fear of the process, fear of ‘getting it wrong,’ fear of upsetting staff and volunteers; all these fears lead trustees to avoid, rather than embrace, the concept of merger
  • ‘It’s just not done’: perhaps the biggest barrier of all; discussions of sector profile, potential strategic collaboration and mergers are not commonplace across the trustee boards of the sector

Learning from leaders

This year, the GMI launch event provided an excellent chance to discuss these issues, with charity leaders who had been through mergers and with sector infrastructure bodies. The discussion highlighted two issues which are constantly borne out in EP’s work with charities before, during and after merger processes:

Firstly, it’s always about the people – and social sector people are, of course, highly passionate and values driven. Merger business cases, clear accounts of how a merger can drive positive change for beneficiaries or for a charity’s bottom-line, are a great starting point. However, charity trustees will often need more; the merger deal needs to resonate with a board’s perception of their charity’s culture, ‘values’ and ‘way’ of doing things. Any merger will involve (for at least one of the organisations involved) having enough trust to give up some degree of sovereignty over ‘their’ organisation to other people. Giving up this sovereignty will always be, understandably (and arguably quite rightly) given the drive, commitment and belief that trustees and leaders bring to their charities every day, will always be an emotional, not just rational, process.

Secondly, ‘reactive’ mergers, in response to a particular (usually financial) circumstance can work. But greater, in fact game-changing, impact for beneficiaries is far more likely to be achieved when charities, large or small, consider mergers as part of their strategic processes and plan them for the long term. Asking what an organisation’s goals are, and researching whether these are best achieved via a merger (while also being clear what the organisation has to offer in a merger scenario), is a sensible, prudent and arguably essential part of any strategic process, and an approach that will better serve the needs of any charity’s beneficiaries in the long term.

As ever, EP’s intention with the GMI is not to preach merger, but to give the facts and raise awareness of the issues, benefits and challenges for the sector around mergers. We hope the Index this year will again help sector organisations view mergers as an important, but achievable, strategic tool to consider as they continue to strive to best meet the needs of their beneficiaries.

Dave Garratt is the Director of Governance and Mergers at Eastside Primetimers, working on a number of merger projects during his last 5 years with the organisation as a Consultant and central team Director. You can access our latest Good Merger Index here.

Eastside Primetimers

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