Can mergers help us rebuild from Covid-19?

With the roll out of the Covid-19 vaccine starting this week, many are daring to dream about rebuilding from this crisis. In this time of rising social need and falling income streams, charities have more reasons than ever to take calculated risks and to work together to achieve impact. Yet so far we have not seen any significant increase in charity mergers this year.

This is despite the benefits associated with pooling your resources and collaborating on charitable services. Will this begin to change as charities and funders start to focus more of their efforts on the longer term over the coming months? And to what extent can mergers help us rebuild from Covid-19?

Lessons from the past

We can learn a lot from looking at previous mergers and past trends from across the sector. I explored the topic of mergers with a panel of experts at our annual conference, NPC Ignites, in October 2020. Dave Garratt of Eastside Primetimers, which produces the annual Good Merger Index, pointed out that we typically see 60-80 mergers across the UK charity sector every year. Numbers didn’t go up in the austerity years and there is no reason to think they will this time. When times are tough, charities are more likely to downsize and hold onto their resources—often thinking that they are the only ones who can do what they do.

Jessica Cavagnero of SeaChange Capital Partners, which runs the New York Merger Acquisition and Collaboration (NYMAC) Fund, saw a similar pattern in the US. After the financial crash, mergers tended to be a last resort option for financially distressed non-profits trying to preserve their legacies. It was only in 2014-15, as the economy recovered, that organisations proactively sought partnerships to advance their missions.

Barriers to mergers

There are three key reasons why we don’t see more mergers in times of crisis. Firstly, mergers require huge amounts of time and energy. At our annual conference, Kay Boycott shared how overseeing the merger of Asthma UK and British Lung Foundation (which was formalised in January 2020) was ‘absolutely all-consuming’ for her as Chief Executive of the new partnership. The pandemic has left many charity trustees and senior leaders feeling exhausted, with little headspace to consider merger. Consequently, as a Charity Finance mergers roundtable discussed earlier this year, some charities are leaving it too late to consider merger and face closure instead.

Secondly, charity mergers are shrouded with stigma. As Kay expertly described at NPC Ignites, ‘there is something about merger that really frightens people …  people project all sorts of hopes, dreams and fears onto it.’

Thirdly, and crucially, most charities don’t have the funds to proactively explore opportunities for mergers and partnerships. Trusts and foundations view funding merger exploration as risky because it may fail and it’s difficult to trace the direct impact of a merger on beneficiaries. At NPC Ignites, Theresa Shearer of the Piper Group pointed to the importance of having ‘a funder that stands by you, including when it doesn’t go exactly to plan.’ The Robertson Trust funded Enable Scotland and Sense Scotland to explore the partnership structure that became the Piper Group and stood by the organisation when one partner later decided to withdraw.

Time to rethink our approach and rebuild the sector

Mergers can be a powerful tool for achieving more for causes. NPC’s previous research into mergers and other sharing models, based on interviews with 50 charities, found that mergers can result in increased reach, a better user ‘offer’, a stronger voice, and greater sustainability. All these gains translate into greater social impact for people and communities: 83% of non-profits in the NYMAC portfolio achieved positive programmatic results.

To realise these benefits and to help rebuild the sector post-covid, merger exploration must be properly resourced. Trusts and foundations have a pivotal role to play here. Currently—with a few notable exceptions, such as Esmée Fairbairn Foundation’s merger feasibility support—most do not openly fund merger exploration. UK funders can gain inspiration from the NYMAC funders who, according to Jessica Cavagnero, show an ‘openness to support risk, to support that conversation, to fully resource the organisations as they bring in necessary third parties.’

The pandemic has exposed sharp social inequalities and exacerbated issues from poverty to mental ill health. This will have repercussions for many years to come. Surely, because of this, now is a good time for both funders and charities to rethink their notions of risk. Mergers are of course not right for every organisation but, as charities look to focus more of their efforts on the longer term, more charities should be able to explore the potential benefits and decide for themselves.

Covid-19 has highlighted the risk of doing nothing and not evolving, if we are to rebuild and create the best society possible, we will need to harness all of our resources and rethink how we work with others.

For more on our latest thinking on mergers, you can now watch this session from our October annual conference, NPC Ignites, for free. We are continuing to develop our thinking on how mergers can help the sector rebuild from Covid-19. This work will form part of our new Rethink, Rebuild initiative, which aims to convene insights and expertise to support the charity sector’s resilience and adaptation as we move through this crisis. If you wish to share your thoughts on the role of mergers in the sector and take part in this initiative, contact us here.