A recent report has found that the number of small charities merging is on the rise. The annual Good Merger Index published by Eastside Primetimers showed that between 1 May 2020 and 30 April 2021, 77 mergers took place which involved 166 charitable organisations. Whilst this was a relatively small sample size the index did say that this was the highest number of mergers recorded within the last eight editions of the index.
Why are the mergers taking place?
A popular school of thought as to the reason for these mergers between smaller organisations is due to financial distress. Research from the report suggests that the mergers were often financially motivated rather than a strategic move.
£33.1m was the value of the top three mergers within this time frame, which is a significant (£88.2m) decrease from the year before. The total value of income transferred via mergers decreased by over £100m compared to the previous year (£62m compared to £176m previously). This evidence strongly suggests that fewer mergers have taken place among larger organisations and more have taken place between smaller organisations. The pandemic and other economic factors in recent years have made it more difficult for smaller organisations resulting in greater merger activity in order to survive. Whereas larger organisations that are better able to manage the economic storm can either stop or defer plans resulting in the reduction of more complex merger activity.
What charities should consider before merging?
If you are considering merging with another charity or not-for-profit organisation then there are a few things you need to consider. Firstly, you need to ensure that merging is going to be a beneficial move for your organisation and you need to weigh up the benefits, costs, barriers and risks of merging. Secondly, you need to have detailed discussions with the organisation you’re merging with about their objectives and any operational synergies that may be achieved as a result. It is vitally important to ensure that each parties’ objectives are compatible. The process of merging should not be rushed as various factors need to be considered by both parties to ensure the merger is beneficial for both. If the merger is not carefully worked through this could cause a divide within the organisation going forward.
If you are considering a merger with another organisation, our experienced Corporate Finance team can advise you through the whole process to ensure that the merger is right for you. At Hawsons we offer a no-obligation free initial meeting to all new clients. Book yours here!
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