What can make or break a charity merger? Jonathan Orchard from Sayer Vincent shares some recent experiences of charity mergers and the lessons learned.
Charity mergers have been a hot topic for many years. As the financial and regulatory challenges have increased over the years, many charities have come to the conclusion that a merger with another charity is desirable and in the interests of their beneficiaries.
Yet, at the same time, many potential charity mergers have not been concluded where barriers to merger have seemed too great.
There is no escaping the fact that mergers can be difficult to achieve, use up time and energy of trustees and management and can discourage valuable donors and volunteers.
There are technical, legal or financial obstacles that can result in an aborted merger. While some form of detailed due diligence is usually commissioned prior to the completion of a merger, more often than not those potential obstacles are more obviously apparent at the outset. Seeking professional advice early in the process will help identify any deal breakers before significant time is invested.
In our experience many of the greater challenges are the ‘softer’ issues including stakeholder communications, organisational culture and clarity of the overall objective.
Reflecting on a successful merger in the hospice sector, a former hospice chief executive commented that the most important success factor was ‘to stay open minded and to take nothing off the table until fully informed’.
She stressed that the ‘perfect solution’ never exists but instead you need to focus on achieving the best you can for your beneficiaries. That includes preparedness to relinquish control and acceptance that you might no longer be the decision-maker going forwards.
One of the critical differences between mergers in the charity sector compared with the corporate world is the range of stakeholders that need to be engaged and communicated with. "We put so much time and effort into the communications" commented the hospice chief executive, "you need to initially communicate the need for change, to build the story in advance of the actual merger process."
These communications need to include both internal and external stakeholders. Many trustees are closely attached to their ‘charity brand’ as are supporters and volunteers. Staff may see costs as the key driver behind mergers and be concerned for their role. There can only be one CEO, finance director, HR director – yet these are key roles to engage in the process.
Send a Cow merged with Emerge Poverty Free in 2019. A lesson they learned from the merger process was the importance of staff engagement and the volume of work involved.
Rowena Warren, Director of Finance & Resources at Send a Cow, said: "Make sure you engage with staff from the beginning on the joint benefits of the merger."
Organisational culture is also often cited as a potential barrier to merger. Chance for Childhood have completed two successful mergers. Their co-CEO said: "The hardest challenge is bringing together team members who are accustomed to an organisational culture that can sometimes look quite different to your own.
"Having a willingness to adapt and open-mindedness to new ideas and ways of working is also helpful to see the real benefits of bringing two organisations together."
Getting the process right and acting on sound professional advice is also key. The chair of a charity which recently had to abort a merger process now recognises where they went wrong. "We missed a critically important step. We thought we had done enough of the groundwork. But we did not draw up an agreed heads of terms [or MoU] at the outset which would have set the framework for the other merger work to be done.
"Instead, we went straight to drawing up the business case without a shared end goal. When we then encountered some governance and management challenges we had no reference point to resolve them.’
There is no single model that will work in all merger situations, but certain key steps are critical to a successful merger process.
These can be summarised as:
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Initial exploration
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Are there any ‘deal breaking’ issues?
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Heads of terms/MoU
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Agreement to explore options further, joint commitment (non-legally binding), outline structure
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Business case
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Examination of the benefits and costs of merger
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Communications plan
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‘Selling’ the business case to external and internal stakeholders
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Due diligence
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Identify any risks to the achievement of the merger objectives
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About Jonathan Orchard
Jonathan is a partner at charity-specialist audit and advisory firm Sayer Vincent and is Special Adviser to the charities Internal Audit Network (CIAN). He leads on SV’s internal audit and risk management work – with a combined portfolio of charity internal audit and external audit clients.
Prior to re-joining SV in 2013, Jonathan worked with a range of charities in a freelance capacity providing internal audit support. This included work with Oxfam GB, WWF-UK and Save the Children. He was also interim Head of Audit at Christian Aid.
He is a regular contributor or articles and conference speaker on the subject of risk and internal audit. He is a passionate believer in the value that internal audit can deliver to build strong and resilient organisations and in giving much needed confidence to trustees that key risks are being effectively managed.
In his roles as CIAN Special Adviser, he supports CIAN to get its voice heard and to make the case for the important role internal audit can make specifically in the charity sector.
He is also an experienced charity trustee and audit committee chair. He is currently trustee and treasurer of INTRAC.