How to merge charities

The recent trend towards consolidation in the charity sector appears to be continuing, even accelerating. The 2017-18 Good Merger Index concludes that while the number of charity mergers remains relatively small, it is increasing and more smaller charities are choosing to merge.

Over the last decade or so we at Almond Tree Strategic Consulting Ltd have supported many small (and medium-sized) charity mergers. Some are primarily driven by financial considerations, others by service synergies/improvements and others by shared values (in fact almost all are driven by a combination of these and other factors). It is essential for charities considering merging to be clear about why and to spend time working out what the newly merged charity will look and feel like.

Having decided to go ahead with a merger, it is equally important to get the process right, not least to ensure the merged charity has proper ownership of its assets and that it is recognised as the successor to the previous charities.

Types of charity merger

In our experience, there are as many types of merger as there have been mergers (each one is different) but there are broadly three main categories of merger: a unified full merger; a unified takeover and a group structure merger. Which is chosen will dictate, to a large extent, the process that the merger must follow.

Unified full merger

In this model, the two charities form a genuinely new charity either by:

• each organisation transferring its assets, liabilities and activities to an entirely new charity (usually with both merging charities being dissolved/wound up); or

• one charity transfers its assets etc. to the other but in doing so the second charity is radically re-organised with a new brand, leadership team and board, representing and roughly equal balance between the constituent organisations.

Unified takeover

In this option, one charity transfers its assets, liabilities and activities to the other and in effect becomes part of the second (usually with the first being dissolved/wound up and its identity/brand being lost or retained as a project within the second). One or two Trustees of the first often join the board of the second and its executives usually have less senior roles post-merger. The unified takeover is probably the most common form of merger, not least because there is often a mismatch in size between the two merge charities which means that the culture and assets of one tend to dominate the merged charity.

Group structure

In a group structure merger, either:

• one charity becomes a wholly owned subsidiary of the second, retaining and a separate board (often with membership adjusted to accommodate Trustees from the second charity), with independent governance responsibilities (as required by the Charity Commission) but with ultimate control retained by the first charity; or 

• creation of a new “holding” charity with both charities being wholly owned subsidiaries of the new entity with separate boards for all three etc.

Each charity often retains its brand and there is usually complete integration of strategy, leadership structure and support/”back office” functions and sometimes integration of some frontline services.

Process considerations

The processes by which each form of merger is achieved will, clearly, vary considerably. These usually involve many of the following:

• Transfer of assets (and liabilities) between charities (which sometimes needs prior consent from the Charity Commission).

• Transfer of staff between charities (in accordance with the Transfer of Undertakings Protection of Employment Regulations).

• Amendments to the objects and other provisions of the governing document of one or more charities (or setting up a new charity - either of which will involved the need for Charity Commission consents).

• Renaming and re-branding of one or more charities.

• Tax planning (including for VAT and Corporation Tax).

• Other consents from Charity Commission (e.g. for land transfers or permanent endowment) or from other regulators (including HMRC).

• Consents from third parties (e.g. to transfer contracts, grant agreements, leases etc.)

• Opening and closing bank accounts.

• Closure of one or more charities.

• Indemnification of Trustees of a charity that is to be closed.

• Registration of the merger with the Charity Commission (and sometimes other regulators).

If you would like to find out more about how to undertake a successful merger please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.