Charity mergers: what do you gain and what do you lose?

As charities face falling donation and investment income, Mark Hunter asks whether mergers could help the third sector ride out the recession, and looks at the practicalities

When newlyweds Age Concern and Help the Aged emerge on their first morning as a merged organisation on 1 April, charities up and down the land will be viewing the marriage with interest. With the recession hitting the third sector hard and charitable donations plummeting, could mergers offer a way forward for many of the UK’s cash-strapped charities?

Last year the Charity Commission dealt with more than 1,500 merger issues. Its specialist mergers unit handled cases involving charities with a combined annual income of £640m. More than 230 completed mergers were added to the merger register.

Whether or not these figures represent an increase in charity fusions is difficult to say. Head of the commission’s mergers unit Richard Black says there is anecdotal evidence of a rise but the merger register was only set up in November 2007 so there are no reliable figures.

Economic background

Nevertheless, as the economic downturn begins to bite, merging or pooling resources may become an increasingly attractive option for charities, particularly since of the 189,000 charities registered in England and Wales, 95% have annual incomes of less than £500,000.

“It’s no secret that more and more people are talking about collaborative working,” says Black. Joint ventures such as shared helplines, combined grant applications, and co-operative marketing and fundraising campaigns are already becoming common. But whether these venture should extend as far as complete merger is up to the charities to decide, he says.

Decision to merge

“The decision to merge has to come from the charities themselves,” says Black. “It’s not our job to encourage people to merge. But once they have made that decision then we are there to help them through the legal, employment and constitutional issues, and things like due process and objective compatibility.”

While the Charity Commission may not be explicitly encouraging charities to merge, the government is certainly nudging them in that direction. The Charities Act 2006 removed many of the legal obstacles to mergers and in February this year a £16.5m fund was announced to facilitate voluntary organisations to fuse and modernise. Interest-free loans from £30,000 to £500,000 were made available to voluntary organisations with an annual turnover of £750,000 or more, primarily for assistance with mergers and related advice.

Transferring legacies

When two or more charities do decide to throw in their lot together there are several complex issues that need to be resolved. Many charities receive significant income in the form of legacies which must be transferred legally to the newly merged organisation – this is one of the areas that was streamlined in the 2006 Act. The merging organisations must be able to show “objective compatibility” for the union to be sanctioned – for instance the donors to a cat’s home might not be best pleased if it merged with a dog’s home. There are also issues surrounding the rights of employees and the brand names of the merging organisations.

“One of the biggest things is often the issue of copyright,” says Black. “If one or both charities is a huge household name then there can be a lot of discussion over which has the largest market share.”

Culture clashes

Culture clashes between the organisations also need to be resolved, he says.

“When two organisations merge you do sometimes get personality clashes. It’s therefore important for all concerned that it’s made clear from the outset that the whole point of the merger is for the benefit of the beneficiaries. It’s not about whose going to get the best job.

“One thing we would always recommend is that the charities draw up a formal list of merger objectives that everyone should work towards.”

This is a message echoed by Richard Taylor, executive director of fundraising and supporter marketing at Cancer Research UK, which was formed in 2002 by the biggest charity merger in recent years when the Cancer Research Campaign joined with the Imperial Cancer Research Fund.

Taylor emphasises that the success of the merger owed much to an intensive period of planning during which both organisations developed a clear idea of what the new charity’s objectives would be. “The merger took place in order to maximise opportunities both for cancer research and for the fundraising to enable it to happen,” he says.

Minimal redundancies

“The merger very much planned for growth, which meant we were able to keep redundancies to a minimum. This has been borne out by the fact that Cancer Research UK is now four times the size of either of the two previous charities.”

In the current economic climate it might be thought that the objective of most mergers would be fairly obvious: to save money. But in reality the decision to merge is not always taken for financial reasons. The Charity Commission estimates that about 58% of mergers are conducted to improve service delivery, 37% for “solvency reasons” and 5% for a combination of the two.

A spokesperson for Help the Aged and Age Concern England emphasises that the new charity is “about creating a single voice for older people” rather than simply a cost-saving exercise. “It will do more than the two charities could do alone and it will do it better.”

Certainly the decision to merge the two charities has not been taken lightly. The charities discussed merger three times in the past 10 years. The latest talks began in 2006 and gathered pace until the decision was finalised in summer 2008. Tom Wright was appointed as the chief executive last November.

The practicalities of merging two charities as large and well known as Help the Aged and Age Concern are immense. Age Concern England has an annual income of more than £85m and employs 1,200 staff. It is part of a federation of 350 Age Concern charities and has sister organisations in Northern Ireland, Wales and Scotland. It also runs one of the largest commercial trading operations in the voluntary sector. Help the Aged’s annual income is £79.5m and it employs more than 1,000 staff. It also works with a large number of local partners and has strong international links with its partner Help Age International. It also has a very extensive database on individual supporters.

Developing a brand

Because the legal context in which charities work is different in Scotland and Northern Ireland, the new organisation will in fact be four different charities – for England, Scotland, Wales and Northern Ireland. One of its biggest challenges will be to come up with a consistent approach that works across all of the nations. Another will be to develop a brand and a name that is acceptable to everyone involved.

“Establishment of a new brand is very complex in our case because we have to consider not only the wide variety of external stakeholders but also the 350 members of the Age Concern Federation who we want to become our brand partners,” says the spokesperson.

While the two organisations have worked together on joint ventures in the past, it seems that blending the two cultures has been an interesting experience.

“Different cultures will catch you out in surprising ways,” says a senior staff member of one of the merging charities who asked to remain anonymous. “Particularly words can have one meaning in one organisation and be understood quite differently in the other. You have to spend time learning about each other and what your partner does.

“You also need to spend time understanding your own culture because the chances are you now regard the way things are done in your own organisation as just how things are done. You should make a conscious decision about what you want the new culture to be like.”

Competing for roles

Co-operation between the two organisations’ staff is further complicated by the fact that many will be competing for a limited number of positions in the new charity.

“Getting people to work together when, particularly in the case of senior managers, they are aware that they may end up competing for a limited number of posts is hard but it helps if you have a highly professional team and people trust that the selection processes will be fair and transparent.

“Everyone needs to have the chance to make the case for their work or their way of doing things, but they also need to accept that very little will be taken for granted and many things will change.”

Further information

Charity Commission mergers advice

Interview with Age Concern/Help the Aged chair Dianne Jeffrey