Charity mergers slump after Covid year spike, report suggests

14 Feb 2023 News

Charity sector mergers have fallen to their lowest level in eight years, despite some predictions that the Covid-19 pandemic may cause an enduring increase in activity, a report has found.

The Good Merger Index 2021-22, published today by Eastside People, found mergers declined by around a third during the year after activity rose to a five-year high in 2020-21.

At the time of last year’s report, the organisation suggested that Covid would continue to push the financial viability of smaller charities and further drive merger activity, but that was not found.

Researchers suggested that the fall in smaller charities merging could suggest that Covid did not impact their finances as negatively as was predicted.

Kingdom Hall Trust mergers not included 

This year’s report covered the year to April 2022 and found “that merger activity, already low, declines rather than increases”.

It found 51 mergers, involving 103 organisations. This compares to 77 mergers involving 166 charities last year and is the lowest level of activity since 2013-14.

However, not included in the most recent figures is a substantial amount of merger activity by the Kingdom Hall Trust (KHT)

Eastside People reports most KHT merger activity took place in 2020-21 but was only entered in the Charity Commission register of mergers in 2021-22. 

Reduction in the number of takeovers

The researchers found that less than half the number of smaller organisations, those with a turnover of £1m or less, were involved in a merger in 2021-22, down to 50 from 115 in the previous year.

The total value of the top three mergers was £42.9m, up from £33.1m the previous year, although still well below typical levels, which averaged £97m over 2014-20.

The top 20 mergers represent 97% of the total financial value transferred in mergers, an increase on previous years, reflecting the reduced number of smaller organisations involved in mergers.

Eastside People said the reduction in mergers involving smaller organisations contradicted the trend of recent years. 

It said most mergers involving smaller organisations are takeovers and frequently reflect their financial stress, and whilst takeovers remain the dominant form of merger and are at a higher proportion than previous years, they have reduced by 31% on the previous year.

‘This year’s report has surprised us’

Overall, the fall in the number of all mergers and a reduction in the number of takeovers, combined with the improvement in the financial position of transferors, could indicate that Covid did not impact the finances of organisations in the sector as negatively as was predicted or might be perceived, the index authors suggest.

This may have been due to the government’s furlough scheme and changes in the behaviour of funders, they said.

Tracey O’Keefe, account director partnerships and mergers at Eastside People, said: “This year’s report has surprised us, but with government support and funders stepping up to the plate during the pandemic it may be that charities were cushioned more than anticipated and the financial drivers for merger were muted. 

“Certainly, merger is not an easy process and, with demand for services ever-increasing and organisations having to pivot to digital delivery and homeworking in this period, perhaps the focus has been elsewhere.”

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