The number of charity mergers increased by 31% last year, after previously dropping to a record low, according to new research.
In the year to April 2024, there were 63 charity mergers overall, compared with 48 in 2022-23 and 51 in 2021-22, according to Eastside People’s Good Merger Index, published today.
Last year’s mergers involved 131 organisations, compared with 96 in 2022-23 and 103 the year before.
The increase in mergers marks the first annual rise after two years of declining levels of activity among charities of all sizes.
In 2023-24, the total value of these deals reached £192m, representing an increase of over 500% compared with the previous year.
This significant year-on-year growth in overall value is due mainly to a significant rise in mergers among larger organisations.
The 20 largest mergers represented £182m of income, a sharp increase on last year’s figure (£30.9m), and 95% of the total financial value transferred, against 98% the year before.
However, the report states that there is also "a ‘long tail’ of smaller organisations involved in mergers". The number of charities with an income under £1m involved in mergers was 65, compared with 59 in 2022-23 and 50 in 2021-22.
The report excluded 111 linked charities merging into GOSH Charity, as researchers considered those part of an internal reorganisation.
Takeovers dominate
Takeovers – where one charity transfers its assets to another – remained the dominant type of merger, increasing to 50 from 41 in 2022-23.
However, there was also an increase in the number of mergers of equals, group structures and subsidiary models in 2023-24.
Most notably, mergers of equals represented double the proportion of all combinations in 2023-24 compared with the previous year.
The merger data shows that the total income of the organisations involved in mergers was £1.03bn in 2023-24, more than double the previous year.
Researchers suggested that more charities may be exploring mergers due to mounting financial pressures, recruitment challenges, and shrinking budgets for outsourced contracts.
Larger charities in deficit
The report also highlighted some new trends emerging in mergers.
Historically, the larger charity in a merger of two tended to be in surplus, while the smaller organisation tended to be in deficit.
However, this year’s report reflected a continuation of a “post-COVID-19 reversal of this trend”, with the number of larger organisations in deficit increasing, from 16% in 2022-23 to 22% in 2023-24.
This indicates that financial necessity may be becoming a key driver for all organisations, regardless of their role in the merger, the report says.
Meanwhile, nine out of the top 20 mergers included independent schools, an increase from one the previous year.
The report speculates this may be attributed to the cost-of-living crisis and the VAT rule changes introduced in January.
‘Shift’ in how charities view mergers
Cara Evans, head of partnerships and mergers at Eastside People, said: “I believe we are beginning to see a shift in how organisations view and are engaging in discussions around mergers and acquisitions.
“In the past 18 months I’ve learned that each merger is unique with various factors influencing success including the positions and beliefs of the chair and CEO, financial status, board motivations and, crucially, timing.
“This year I’m so pleased to see a significant increase in mergers showcasing once again the sector’s resilience and ability to find solutions.
“We believe organisations are considering mergers more strategically for growth and diversification, and we hope this trend continues as a viable solution to the ongoing challenges across the sector.”
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