Charity mergers dropped to a record low last year, according to a new report, with takeovers increasing.
In the year to April 2023, there were 48 mergers overall between 96 organisations, 6% fewer than the previous year and 37% down on 2020-21, according to Eastside People’s Good Merger Index (GMI) 2022-23.
This is the lowest number since the GMI started in 2013-14 and was driven by a decline in mergers between larger charities.
The number of mergers involving charities with an income of between £1m and £10m declined from 34 to 19 in 2022-23, while those with an income of more than £10m rose from nine to 12.
Meanwhile, mergers between smaller charities (£1m income or less) increased from 50 to 59, but this remains below the 115 recorded in 2020-21.
Only four “mergers of equals” were completed between charities of similar size last year, comparable with the year before but less than a third of the amount in 2020-21.
Meanwhile, takeovers, where one charity transfers its assets to another, increased to 41 from 40 in 2021-22, but were down on the 58 recorded in 2020-21.
Report findings
Merger data for the year to April 2023 shows approximately £32m of income was collectively transferred from one charity to another, which is less than a quarter of the average over 10 years of £146m.
The total income of the organisations involved in mergers was £483m, which is a rise of £17m from the previous year.
The 20 largest mergers represented £30.9m of income and 98% of the total financial value transferred, less than half of the 2021-22 figure of £77.1m.
Researchers found the proportion of receiving organisations in surplus remained at a more typical level of 64%, giving them a more suitable position to take on the risk of a merger.
This figure is higher than it was in the year 2020-21, which could reasonably be attributed to the impact of the Covid-19 pandemic on charity’s finances, the report says.
Mergers predicted to increase
David Holmes, chief executive of Family Action and former chair of Children England, a charity that closed in December 2023, said at the report launch that many charities are in “survival mode” and therefore not always in the “headspace” for merging.
He suggested the number of mergers will increase, but they are increasing from a low base.
Holmes said it will only do so significantly if the headspace for CEOs and boards to be thinking ahead about mergers is created, which involves a “sea change in how we are governing our charities”.
He added there would need to be a change in culture to look at mergers as potentially positive.
“If people can get over the anxiety of merger and deal with the complexity, then there is opportunity to be embraced,” he said.
Paul Townsley, chief executive of Humankind Charity, which is merging with Richmond Fellowship this year, said there may be a higher amount of mergers due to more relationship building post-Covid-19 pandemic.
Liz Searle, chief executive of Keech Hospice Care, which merged with Bedford Daycare Hospice last year, also believes mergers will increase. She noted mergers are risk-based activity, and charities need to make sure they are clear about that.
‘More charities consider the benefits of collaboration’
Eastside People predicted an increase in mergers in 2023-24.
The report states the “indications are that conditions today are worse for both society and the sector with many not-for-profit organisations sadly being forced to close their doors for good when a strategic approach to mergers or long-term partnerships may have been an alternative solution”.
Cara Evans, head of partnerships and mergers, said: “Eastside People has seen a 70% increase in enquiries and a 30% increase in merger-related projects in the last 12 months.
“Success stories such as those from Keech Hospice Care, Rennie Grove Peace Hospice Care and Kisharon Langdon show that mergers are an option to consider and can enhance the services and support that their beneficiaries need.
“We actively recommend that charities consider merger as a strategic, rather than reactive option and believe that there will be an increase in merger and partnership discussions and implementations in 2023-24, as more charities consider the benefits of collaboration and are able to find a way forward by working together.”
