One of the biggest things that has struck me over the past few months researching charity mergers is that the topic is still controversial—it’s our sector’s Marmite. It can get people’s blood boiling or their praise flowing.
We often hear the statistic that there are over 160,000 registered charities in the UK—97% of which are small and micro. We hear that more mergers could reduce this number, allowing fewer and perhaps larger organisations to serve the sector more efficiently.
In the other camp, mergers are characterised as hostile, super-sized charities hoovering up smaller charities and stifling competition.
Arguments on both sides lack nuance
This binary view is unhelpful.
It’s true that duplication of services can be wasteful. But a large ecosystem of charities of different sizes and approaches can drive improvement in the charity sector. And championing costly mergers merely for the sake of reducing the overall number of charities draws focus from the real benefit they can bring.
On the flip side, mergers that rescue troubled charities for the good of their service users are much more common than the predatory takeovers you might see in the private sector. And mergers take place at all levels, with 33% occurring between charities with incomes of £1–5m. The suitability always depends on the external and internal conditions affecting a charity or its sector at the time.
‘Mergers’: an imperfect catch-all?
At NPC we think that nuance and context has been missing from the debate on mergers. Overall, mergers happen to create two distinct types of impact: to better achieve mission; or to enhance financial sustainability. Yet the form that they take varies. ‘The merger’, a catch-all term for a myriad of models, is too often seen as black or white.
So perhaps it’s a terminology issue. Maybe it’s time to ditch the term, or expand its definition, and we’ll be thinking more about this as our research develops. But for this purpose we’ll include all forms of consolidation under the term of merger—covering everything from white labelling and back-office sharing to a full take-over.
Thinking about mergers alongside a charity’s development
As well as thinking through the different types of merger, another healthy way to have a more mature debate is to think more about which type of ‘merger’ might be suitable for charities at different stages. Doing so can help charities plan for the triggers, barriers and most appropriate models for merging.
As part of our ongoing work on mergers, we have developed a lifecycle diagram. We adapted it from the private sector’s product lifecycle, considering the needs of service users instead of customer demand for a product, and funding in place of investments.
This should help charities think through their limitations and opportunities at different stages of their development, and what this means for the question of mergers. The lifecycle can differ in all charities; for the charity where I previously worked, a merger came 200 years into its history.
The diagram follows the stages in a charity’s lifecycle pitched against its size in terms of reach and income. A charity at any of these stages can return to a previous stage if changes are made. These four stages are:
Embryonic: this is either before or after being registered as a charity—a vulnerable time when the idea is still being developed and might not reach the other stages of the lifecycle.
Growth: here a charity is increasing in number of service users, supporters, income and its ability to make an impact.
Maturity: the size at which a charity reaches this stage and stops growing will differ for all—the charity might remain here for some time or return to the growth stage to become larger if the opportunity arises.
Decline: realistically this stage will happen to all charities at some point in their lifecycle—demise can be resisted by charities returning to the growth or maturity stages.
We think this begins to show mergers as not a single thing with a single aim. In Part 2 I’ll look more at this model, with real-world examples of charities who have used mergers at different stages.
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