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DavidSaint
David Saint

5 Dec 2017, 10:41

Good Merger Index Just Launched

Our partners Eastside Primetimers have published their latest Good Merger Index, a comprehensive look at charity mergers and consolidation activity.

This is now the fourth edition of this Index, with data centring on charity mergers in the year of 2016/17. Producing this report continues to provide a good overview of merger activity in the not-for-profit sector, including both barriers to greater consolidation and positive examples of change in certain ‘hotspots’. It also provides an update on some of the recommendations Eastside Primetimers made in 2016 about how the sector might seek to facilitate more mergers.

The core finding this year is that charity mergers remain rare, despite strong examples of parts of the sector responding innovatively to external pressures and two promising developments to help facilitate the progress of charity mergers. In the year for 2016/2017, 70 mergers involving 142 organisations were seen, representing about 0.09% of the sector’s 167,000 charities.

Moreover, the quality of the mergers we do see is another issue. 44% of the smaller ‘transferor’ organisations (those seeking merger with similar-sized charities or being taken over) were in deficit in the year before merger. The average operating margin of ‘transferor’ charities as a percentage of their turnover was -14%. This shows that mergers are still very often sought as a form of ‘rescue’ from a position of financial and strategic weakness.

However, the report also notes three interesting ‘hotspots’ of activity with their own unique drivers – federated charities, supported housing and mental health – and these together comprised 36% of the total of mergers in 2016/17. Interviews conducted by Eastside Primetimers with chief executives in this space uncovered how these types of organisations are partnering for impact in the face of constraints on state funding, welfare reforms, rent caps in the housing sector and regulatory pressures.

Two developments are also worth watching in the field of not-for-profit mergers. One is the new Charity Governance Code, which in the past year has gone some way towards clarifying the obligations of trustees around considering merger or closure. And Eastside Primetimers has been working with the Social Investment Business and a group of funders on the development of the Merger Turnaround Fund to support charities undertaking merger. It will be important to see whether these initiatives take off and have an impact in 2018.

Eastside Primetimers are keen to hear feedback on the Good Merger Index – please contact them at elliot@ep-uk.org
or on 020 7250 8440.