As a sector, we have a big problem with mergers and acquisitions. It’s not that we cannot do them; the anecdotal evidence suggests we have a much better track record of making them succeed than the private sector does. The issue is that we do not do them, and certainly not as much as we should.
When I ask people across the sector why this is, three big themes emerge. First, we don’t have the shareholder and financial pressures that drive M&A in the private sector. Second, charities that aggressively set out to do M&A are seen as putting growth before mission. And third, trustees and chief executives will inevitably block it: sometimes on principle, but it’s also like asking turkeys to vote for Christmas. It’s time we busted some myths.
To begin with, shareholders in the private sector rarely instigate great M&A deals – they tend to be driven purely by financial considerations, and are every bit as likely to fail as to succeed. In fact, some of the best M&A results have come from businesses being purposely taken private specifically to escape shareholder influence: the 2015 merger between Alliance Boots and US giant Wallgreen would probably never have happened had Stefano Pessina not taken Boots private back in 2007 to pave the way.
The key to successful M&A, in any sector, goes way beyond the financial; it hinges on the fit – primarily the fit of purpose, strategy and culture – and the strategic ability to do something that neither organisation can do on its own. Believe it or not, none of those are big shareholder considerations – they’re board considerations, and that’s no different for the third sector. The only difference is that most business boards regularly talk about M&A as a core part of their strategies, while those charities that do the same tend to fall victim to the second myth.
Age UK and Catch22 are, in my experience, the most oft-cited examples of "aggressive growth over mission". Yet, having spent time with both of those charities’ chief executives, and seen the difference their increased scale has made to their ability to influence policy and opinion, to innovate, to invest and to reshape services, it’s a pretty uninformed perspective. At a recent breakfast, attended by chairs and chief executives of very large charities, one leader talked through the original prospectus for his charity's high-profile merger of several years since, and the aims they’d achieved and not quite achieved since it happened. The ones he spoke most passionately about weren’t the transformational investments in systems and technology, nor the step change in income, but the policy and legislative changes the charity was able to influence purely as a result of its increased scale.
At the same session, the chair of another recently merged organisation endorsed that view, giving examples of how her charity’s new-found scale had far more influence and negotiating strength with research institutions and pharmacy companies than the two prior charities together, significantly accelerating the pace at which they could achieve their mission. Being big and successful doesn’t mean you don’t care about the mission – it simply means you’re in a stronger position to achieve it.
It’s true that charity boards have a tendency to resist perfectly obvious M&A opportunities, and most major mergers are years in the making for that very reason, but they do eventually happen and it’s almost invariably positive. With the right process and the right people, the right board conversations and a mindset free from the ridiculous "big is bad" myth, there’s no reason we shouldn’t see many more third sector mergers and acquisitions, to create stronger, more influential players, to champion the sector and make a bigger difference in the world.
Martyn Drake is founder of the management consultancy firm Binley Drake Consulting