Most charity mergers should be classified as takeovers, report says

The consultancy Eastside Primetimers looked at 189 charity mergers occurring between January 2013 and April 2014 and found that in only 23 per cent of cases did two or more organisations form a new one

Almost three-quarters of charity mergers should be classified as takeovers, according to a new report from the management consultancy Eastside Primetimers.

The Good Merger Index, published today, is based on research carried out by Eastside on 189 charity mergers that took place between January 2013 and April 2014.

The report says that 73 per cent of those consolidations should be classified as takeovers, defined as one organisation transferring its assets and activities to become part of another organisation and then being dissolved, although in some cases they did retain some identity – for example, as a project or service of the larger organisation.

Actual mergers – where two or more organisations joined to form a new organisation – accounted for only 23 per cent of deals, with the remainder being asset exchanges and group structures.

The largest deal examined by income was the merger between the homelessness charities St Mungo’s and Broadway to form St Mungo’s Broadway, which accounted for a combined annual income of more than £64m.

A wide range of merger structures were found to be used in the larger deals, of which five out of the top 10 were genuine mergers.

Consolidations involving small charities were almost always classified as takeovers, the report says, although there was still variety in the structure because many were found to retain some autonomy and identity as subsidiaries.

A complete takeover where the acquired organisation lost its independence completely occurred in less than half of the deals surveyed.

The report says that more than 32,000 employees, equating to 4 per cent of the sector’s workforce, were affected by being part of a major strategic change in this period and more than £190m of income was transferred through the deals.

There was a particular concentration of mergers among health and social care organisations, which featured in more than half of all deals and 90 per cent of the largest deals. Of these, mental health, disability, homelessness and substance misuse stood out as areas with high levels of activity.

Richard Litchfield, chief executive of Eastside Primetimers, told Third Sector he was surprised that there had not been more mergers during the sample period. This, he said, indicated that charity consolidation was at a "fairly early stage".

He said the strongest theme to come from the report was that charities should not be afraid of mergers, with the study demonstrating that they "come in all shapes and sizes, and reach into almost every part of the charity sector".

"The data for 2013/4 shows that many negative perceptions of merger are misplaced," he said. "In 75 per cent of deals, the acquired organisations were able to retain some form of identity, management control and board representation. There were many examples where organisations, even if they were small or in distress, were able to negotiate favourable terms and so created a much more sustainable environment for staff and service users.

"A merger structure can be fit to every given situation and I hope this report gives charities the confidence to explore the opportunities." 

Eastside plans to produce The Good Merger Index every six months in order to provide comparable data.

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