Make merger an option in your long-term planning

Combining with another organisation is sometimes the best way for a charity to fulfil its aims, so being merger-ready is simply good sense, writes Rebecca Cooney

The new version of the Charity Governance Code, formerly Good Governance, released for consultation in November, calls on charity trustees to consider merging their organisations if that is the best way to fulfil their aims effectively.

In the year to 31 March 2016, a total of 54 mergers took place in the charity sector, involving 116 organisations with a combined income of £800m, according to The Good Merger Index, an annual report produced by the management consultancy Eastside Primetimers.

John Williams, vice-chair of the Association of Chairs, says mergers should come up as an option during the long-term strategic planning that is an inherent part of good leadership from the chair and chief executive. "Charities should take the opportunity from time to time to consider if the way they are currently organised is the right way forward for the organisation," he says. "A lot of mergers happen when problems creep up on charities and force them into it."

Richard Litchfield, chief executive of Eastside Primetimers, says charities tend to explore mergers in times of distress, but he believes two strong charities should also consider coming together.

For example, he says, a charity might realise that combining its services with those of another makes it more attractive to local authority funders or that they are duplicating the work of a similar local group and merging the two might bring savings on back-office support.

It is important that boards approach the idea with an open mind, Litchfield says. "Sometimes people think you have to have everyone on the board behind it and everything agreed before you set out," he says. "That's not the case, but they do need to be engaged and ready to explore."

The first step is to identify a potential partner. Organisations will instinctively seek bodies of a similar size, he says, but if you're in a difficult situation financially a stronger partner might be a better option.

Williams points out that this is not just about large charities rescuing small ones. "A merger with a smaller, innovative charity can actually give successful large organisations a new lease of life, as well as allowing them to capture some great future leadership," he says.

Just under three-quarters of the deals completed last year were takeovers, and only 23 per cent were straightforward mergers, according to The Good Merger Index. But being "taken over" does not necessarily mean losing your identity. Williams was vice-chair of ChildLine when it merged with the children's charity the NSPCC in 2006. ChildLine wasn't struggling, but had realised that a merger could free up the money in its reserves to directly support beneficiaries, Williams says.

"The NSPCC respected the value of what it was taking on, so ChildLine kept the name," Williams says. "It was very smart, because the NSPCC got a better direct understanding of children's voices, but the relationship between the beneficiary and the ChildLine number was undiminished."

Once you've found a partner, Litchfield says, it's essential to do due diligence on the other organisation and to be frank in return. Pension liabilities and overall deficits tend to be the main stumbling blocks, but culture and ego can also create problems, he says. "Pretty much every merger negotiation has some element of ego at play, and the ones that don't happen are often the ones where they haven't been able to put that aside," he says.

For Williams, both organisations should see the merger as a process of forming something new. "So instead of saying 'but this is the way we do things', we need to create a new culture that takes the best practices and processes from both sides," he says.

And we should all remember that the process is ongoing, Williams says: "It's not about having it done from day one. You can change the name and the corporate identity, but getting used to the change takes time."

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