An increase in the number of mergers involving small charities could be an indication of financial stress in the sector, new data suggests.
The consultancy Eastside Primetimers’ latest annual Good Merger Index, published today, shows that 77 mergers involving 166 organisations took place between 1 May 2020 and 30 April 2021.
The consultancy said that while this represented only 0.1 per cent of the approximately 170,000 charities registered with the Charity Commission, it was the highest number of organisations involved in mergers across all eight editions of the index.
The report says this is due to the increasing number of mergers between smaller organisations with annual incomes of less than £1m, a trend it calls “symptomatic of ongoing financial pressures”.
It says charities merging over the course of the year had a combined income of £559m, which was consistent with previous years.
But the total value of the top three mergers was £33.1m, significantly down from £88.2m in the previous year, indicating a shift away from complex deals involving bigger organisations, the report says.
It says this is also reflected in the total value of income transferred via mergers, which was £62m, down from £176m the previous year.
This is due to fewer mergers taking place between larger organisations, which the report says “have been able to weather the storm but, in focusing upon their response to the pandemic, have stopped or deferred more complex merger activity”.
The report shows that takeovers are at their highest level since the inception of the index, with 58 recorded last year.
Research also shows that these were financially rather than strategically motivated.
In terms of financial value, the biggest merger completed during the year was between the substance misuse charities Adferiad Recovery and CAIS Hafal Welsh Centre for Action on Dependency and Addiction, which involved the transfer of £21.4m in income.
The second-biggest deal was the takeover of the children’s hospice Donna Louise Trust by the fellow hospice charity Douglas Macmillan, with £7.4m in income transferred.
The report says: “it is concerning that the current economic and societal challenges may be limiting strategic approaches to merger and forcing smaller organisations to survive through takeover.”
Tracey O’Keefe, head of partnerships and mergers at Eastside Primetimers, said: “This year’s report shines a light on the first year of the pandemic and how the sector began to respond.
“It would seem that smaller organisations, with limited options for mitigating impact, have sought safe harbour for their services and beneficiaries; whilst larger organisations, better able to weather the storm, have stopped or deferred more complex merger activity.
“What our case studies clearly show is that, with clear strategic focus and commitment, merger and wider partnership working remains a key route to improving sustainability and delivering impact for beneficiaries.
“As such they should be central to both executive and board thinking as we continue to navigate the pandemic and its aftermath.”