Charity mergers are not growing in popularity even though the largest merged charities over the past three years have recorded income growth of more than 20 per cent, according to the latest Good Merger Index.
The index, which is produced annually by the management consultancy Eastside Primetimers, says that only 54 mergers involving 116 charities took place in England and Wales in the year to 30 April 2016 – equivalent to 0.07 per cent of the charity sector. In comparison, 61 deals took place in 2014/15.
The largest deal of the year was the creation of the Masonic Charitable Foundation, which involved the merger of four Masonic charities worth a combined £82m. The next biggest was the merger of Totton College in Hampshire and the crime reduction charity Nacro.
The index says that the top 10 deals accounted for 92 per cent of "merger value" in the sector – or the combined incomes of charities involved in mergers over the course of the year – with the two biggest deals accounting for 59 per cent of the total.
Approximately half of the mergers involved charities with annual incomes of less than £1m, and a further 29 per cent had incomes of between £1m and £5m.
The index says that 61 per cent of the mergers of charities were takeovers, with another 11 per cent of deals involving one charity becoming a subsidiary of another, 24 per cent were equal mergers and 4 per cent resulted in group structures.
Almost four in 10 charity sector mergers were in the health and care sector, the index shows.
The report looks back to mergers carried out in previous years and says that the larger charities involved in the nine of the biggest mergers to take place in 2013/14 have experienced an average growth in income of 64 per cent, with 20 per cent being the lowest increase.
This demonstrates how "growth through merger yields much faster gains than organic growth", the report says.
In his introduction to the index, Richard Litchfield, chief executive of Eastside Primetimers, says the report shows that financial distress remains the primary reason for mergers in the charity sector.
"Once again it seems that, despite financial headwinds, commissioning challenges, arguable duplication and increased discussion around merger in recent years, many organisations are simply not responding to the conditions they face," he says. "In fact, many more charities go into liquidation each year than successfully seek an alternative home for their services."
Simon Rowell, senior director strategy and market development at Big Society Capital, said: "It is encouraging that charity mergers are continuing and provide a viable route for many charities to consolidate their operations, generate further income and make a greater impact."