Why aren’t more charities considering merging

Historically charity mergers have been few and far between. In the year to March 2017 it was reported that only 70 mergers involving 142 charities had taken place. Charity Times recently reported new research revealing a list of charities that chief executives from across the sector think should merge to form “mega charities”. The research, published by Firetail, highlights the fact that despite extensive talk among the sector, there is a growing lack of mergers, despite there being clear benefits. Earlier this month the UK’s largest breast cancer charities announced their plans to merge to create “one comprehensive offer” which will “increase their campaigning voice”. If this is the case why aren’t more charities considering merging?

There are a number of perceived barriers which appear to result in the failure of the conversation between 2 charities even starting:

• Cost of exploring merger opportunities
• Structural barriers including Trustee resistance
• Staff retention
• Lack of opportunities
• Resistance from funders
• Governing document restrictions
• Lack of knowledge and experience

Added to this the hurdles that can arise when a merger takes place:

• Aligning policies and procedures even when charities have very similar objectives
• Resolving IT issues
• HR issues
• Legacies and the need to ensure that any legacies to either of the ‘old’ charities flow through to the new charity without being restricted to one area
• New image and rebranding
• Communication to beneficiaries, grant providers and supporters, as well as suppliers

What can charities do to overcome these barriers?

Right from the start, communication is key. Trustees need to be open-minded and seek expert professional advice. For example in the due diligence process, some of this may be able to be undertaken by the Trustees themselves or within the Charity’s staff but they might decide to use a firm of Accountants to review the financial and governance aspects of the organisation that they are considering merging with. The key for Trustees is to gain as much value as possible from the professional advice that they receive – a detailed specification of the areas that the Trustees want covered should be agreed at the outset.

Communication can help greatly when dealing with the barriers relating to staff, funders, beneficiaries and suppliers but also amongst Trustees’ too. The questions of – how to best serve beneficiaries and how you are doing that? Are you acting in the best interests of the charity and its assets? Will a merged charity make more impact? – should be asked frequently by Trustees Boards.

With the increased pressure on the recruitment of Trustees, should merging be considered more often? Would this be a better option than having a Trustee board which is lacking in certain areas, is under too much pressure or is made up of Trustees that have been Trustees for a significant number of years? Mergers need to be considered in the answer to these questions and not ignored. This means identifying the options and not ruling out any too early in the process. Mergers are a complex endeavour and need to be undertaken with property care and scrutiny.

Potential future legacies can be a large barrier but need not be if the merger is set up correctly. Bank accounts are often kept open for up to a year post-merger which can help, but if the governing document of the newly merged charity includes a section ensuring that will take on all of the debt, legal obligations and benefits from the two charities merging, this should ensure that any legacies made to the old charities flow through.

Moving forward, it’s recommended that the newly merged charity should have trustees from both ‘old’ charities. The merged breast cancer charity is being chaired by a trustee of one of the charities and the chief executive role is being fulfilled by the current chief executive of the other charity. Each existing will have 6 existing trustees on the newly merged board.

Mergers are a complex endeavour and need to be undertaken with property care and scrutiny.

We have a specialist charity team who can advise on insolvency and restructuring matters. If you require support on this topic please do not hesitate to contact us here.

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