More mergers won’t stifle the sector, but they can help it grow

09 Feb 2015 Voices

Concerns about charity mergers damaging the uniqueness and independence of the sector are unrealistic, says Richard Litchfield

Concerns about charity mergers damaging the uniqueness and independence of the sector are unrealistic, says Richard Litchfield

The latest debate about mergers in the charity sector is missing the point, and is dangerous because it gives the impression that charities are on the verge of turning into a monolith culture.

In a recent column David Ainsworth summarised various viewpoints on merger from Sir Stephen Bubb and Andrew O’Brien of Charity Finance Group and he expressed a common fear that more mergers could threaten diversity and competition in the sector.

However, you only need to look at the underlying figures on merger activity to see that this concern is grossly overstated.

There are 164,000 registered charities in England & Wales. In a report on merger activity, which Eastside Primetimers published last year, we found that 189 organisations had undertaken a grand total of 90 deals during 2012-13. That’s 189 out of a possible 164,000. Whichever side of the debate you stand, it’s clear that merger activity in the sector still represents a drop in the ocean; and therefore even an exponential increase wouldn’t come close to over-centralising the sector or stifling competition to the degree that critics fear.

But on the point of competition, there is a bigger problem that the charity sector does need to tackle head-on. While mergers are unlikely to have much of a limiting effect on competition within the third sector, where they could do a world of good is by helping some to scale up and compete with private sector companies in the public sector commissioning market.

Ainsworth rightly acknowledged this challenge last April: “why, if charities should be delivering services, have they continually lost out, in a major way, to the Sercos and A4es of this world? There are a number of problems, but the biggest barrier seems to be scale – charities just aren’t big enough to win the contracts they need to”.

Mergers are one very good way that charities can increase their size and scope almost overnight. Until the sector has some organisations that have the resources and financing capacity to act as prime contractors then it will be difficult for third sector organisations to be able to participate in any kind of significant way in the delivery of public services.

The recently announced merger between Addaction and KCA is a good example as it strengthens their combined offer bringing together drug, alcohol and mental health services under one roof, and thus making the new organisation more attractive for commissioners.

Understandably there is a common worry that merger might undermine the distinctiveness of the sector, particularly the responsiveness, unique culture or specialisation that smaller charities often exhibit and pride themselves on. This of course can happen but more frequently I have found leaders of large charities, who want to take a smaller charity into their family, are acutely aware of the danger and make every effort to recognise the expertise and distinctive services that that merger partner brings.

After all, what’s the point in doing the merger if the other organisation doesn’t bring something different to you? Standardisation is in no one’s interest.

As Ainsworth says the impetus for charities to merge is often as a reaction to a chief executive moving on or as a result of financial hardship. But the sector needs to think ahead much more than this. A charity’s social mission and the interests of its beneficiaries should be the driving factor, rather than the convenience of the people who run them.

A proactive merger which brings together two financially health organisations invariably has a very strong economic benefit for the organisations involved. Costs are spread across a single infrastructure and new income opportunities are created while there are no transaction costs to offset the benefits (as there are in private sector mergers). Effective boards should look at these types of mergers much more regularly than is the case at present.

I like Ainsworth’s idea about supporting charity executives and trustees find new opportunities after a merger. There are many other things that funders, infrastructure bodies and commentators can be doing to foster more a positive environment for charity mergers.

Certainly we should start would be with an evidence-based debate. The idea that mergers might create a monolithic culture of three or four major charities is way off the mark for now.

Richard Litchfield is chief executive of consultancy Eastside Primetimers

 

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