Since the onset of austerity, the potential for charities to merge has sparked debate. Charities face intense competition for reduced funding and public anxiety about their governance. But much of the sector remains sceptical, with managers viewing merger as a “sign of failure” or finding trustees uncooperative.
The new Good Merger Index found there were 70 mergers involving 142 organisations in 2016/17 – around 0.09% of the sector’s 167,000 charities. That’s a slight rise from 2015/16, but on the whole, charity bosses are not choosing to partner with other organisations to boost impact and do more with less.
We need to kick the habit of seeing merger as a taboo, when joining forces for greater social benefit should just be something considered routinely. When we studied the financial outcomes of organisations post-merger in previous 2016 Index, most had grown beyond a sum of their parts by an average of 10%, putting them on a firmer footing and broadening their reach. The Brain Tumour Charity stated their growth “continues to evidence the success of [their] merger” and allowed them to spend 29% more on their core charitable functions, “more than ever before”.
The reasons for this reluctance are complex. Some smaller charities lack the funding and expertise necessary to explore merger with confidence – greater support here could help, potentially from independent consultants and a dedicated fund backed by not-for-profit foundations and social investors.
But many founders and boards simply put the independence of the organisation before its founding mission. Others only contemplate merging when the charity is on the brink, exposing beneficiaries to severe uncertainty and weakening the charity even if it does find a new home organisation.
Fortunately, some charity leaders are embracing the idea. Our research uncovered three hotspots of activity – federated charities, supported housing and mental health – that together comprised 36% of all charity mergers last year.
For federations – national charities like Mind and the YMCA with autonomous local branches – mergers can provide a balance between localism and scale. As part of the research behind the Good Merger Index, the chief executive of the YMCA in south west London told us their cross-London merger had led to other local managers approaching him for advice about how to replicate their arrangement, which enabled them to make backroom savings and invest in housing, childcare and coordinated homelessness services. Mind is also willing to support those of their 135 local branches across England and Wales who are interested in the possibility of merging.
In response to previous plans for a rent cap, welfare reforms or regulatory judgements from the social housing regulator about the viability of some organisations, some housing providers have banded together. Others have sought to take over smaller community services to broaden their good work even in hard times. And despite high-profile government pledges, local mental health charities are struggling with local authority and NHS pressures, compelling them to find new ways to pool resources in order to survive. In Surrey, Eikon and Windle Valley Youth came together for greater combined scope and to stop competing for the same funding – together they secured child mental health services projects with the local NHS trust.
Mergers always include challenges – there is intricate due diligence needed to see off financial bombshells, or the need to reassure wary staff teams and forge a unified culture. But most of the leaders we spoke to felt the move had been worth it.
Most encouraging of all, several chief executives, along with philanthropic funders, believe there is plenty of untapped potential for new mergers that will make charities better resourced and more effective. But whether 2018 will be the year the charity sector finally gets to grips with it remains to be seen.
Richard Litchfield is chief executive of Eastside Primetimers