Charity mergers are on the increase and being led by small not for profits facing increasing financial pressures over the turbulent twelve months from April 2020, says new research undertaken by Eastside Primetimers for the latest Good Merger Guide.
Over the past few years this emerging trend is now at a 6-year high, even though overall numbers remain low at 77 mergers involving 166 organisations (0.1% of 169,862 registered charities in the UK at the end of 2020/21 financial year).
As small charities with turnover of less than £1m become increasingly engaged in merger activity, often as a result of financial pressures and uncertainty around sustainability, the number of more complex mergers between larger organisations has fallen. When these ‘mergers of equals’ do happen however, they are usually as a result of considered, pro-active and strategic efforts to create a more sustainable financial model. Impact from these larger mergers can include increased influence and advocacy, greater reach and leadership capacity as illustrated in GMI case studies.
Takeovers are at the highest level (58) since research began for the GMI in 2014, possibly reflecting the more straightforward process than that involved in merging which requires greater resources, time and capacity. Eastside Primetimers research indicates that takeovers are more likely to emerge from financial pressures rather than from strategic considerations.
Charities merging in the twelve months of 2020/21 had a total combined income of £559m, similar to the findings of the previous two years. There was a dramatic shift however in the value of income transferred at £62m, down from £176m in 2019/20 and lower than records show from any previous GMI year.
The 20 largest charity sector mergers in the 2020/21 Index represented £55,019,000 of income transferred which is substantially lower than the £161,460,000 in 2019/20.
Commenting, Tracey O’Keefe, Head of Partnerships and Mergers at Eastside Primetimers said:
“This year’s report shines a light on the first year of the pandemic and how the sector began to respond. It would seem that smaller organisations, with limited options for mitigating impact, have sought safe harbour for their services and beneficiaries; whilst larger organisations, better able to weather the storm, have stopped or deferred more complex merger activity.
What our case studies clearly show is that, with clear strategic focus and commitment, merger and wider partnership working remains a key route to improving sustainability and delivering impact for beneficiaries. As such they should be central to both executive and board thinking as we continue to navigate the pandemic and its aftermath”.
- Growth in the number of smaller organisations (turnover less than £1m) involved in merger in 20/21 is significant, with the number now 67% higher than the average of all previous years.
- The total value of the top 3 mergers is £33,112,000, down from £88,236,000 the previous year. The value of deals is significantly reduced, indicating a shift away from more complex deals involving larger organisations.
- The total income of 166 organisations involved in mergers was £559m.
- Broadly consistent with previous 2 years, data indicates no significant shift in combined income of organisations involved in mergers but at £62m, down from £176m in 2019/20, a significant drop in value of income transferred.
- The value of income transferred is 34% of the average of all previous years, and 35% of the previous years’ value.
- By the amount of income transferred, the largest 20 charity sector mergers in 2020/21 represent £55,019,000 of income transferred, significantly lower than 2019/20 (£161,460,000)
- The top 20 mergers represent 89% of the total financial value transferred in mergers that year, which is similar to all years. This is because small organisations make up the greater part of the sector, and most mergers are consequently of relatively low value.
- A fall in proportion of organisations in surplus and an increase in proportion of those in deficit in year prior to merger which may be an indicator of financial stress in the sector and a factor in determining trends.
Our research brings unique insights to help build a picture of what has been happening to organisations as they navigate the challenges and uncertainty created by the pandemic. We’ve identified some clear differences in the pattern of mergers in the past year and this raises important questions for what lies ahead, and how the sector will adapt.