About mergers

This page explains the types of charity mergers and the different reasons for merging.

Once you have understood this, you can explore:

• Deciding to merge
• Due diligence
• Pre-merger: Areas of focus
• Merger process
• Actions post-merger

The Institute for Voluntary Action Research (IVAR) provides:

• information on mergers updated in light of the covid-19 pandemic
• a new edition of its downloadable guide: 'Thinking about…Merger, during covid-19'. 

Merger is where two or more organisations formally come together. Most commonly by one transferring its property to the other and then ceasing to exist.

Merger is usually referred to as a ‘takeover’ in the commercial world. The term merger has no precise legal definition and is used to cover a range of scenarios.

When deciding to merge your main consideration should be whether merging will improve outcomes for beneficiaries by helping an organisation better achieve its aims.  

There has been a growing interest in merger among voluntary and community organisations. This is in response to a combination of internal and external factors along with the impact of the pandemic. As the 2020 IVAR Report states:

‘For organisations with their backs against the wall, the merger proposition now may be: the preservation of something versus the potential disappearance of everything.’

The greatest disappointments with mergers happen when both organisations believe they will be able to continue exactly as before. The most successful mergers are those where the parties recognise there is a strategic and organisational fit: each has something to gain from the other.

Internal drivers include:

• the desire to provide more or more effective services to beneficiaries
• the need to increase efficiency through better use of resources
• preventing duplication of services
• financial difficulties
• raising public profile or boosting income
• loss of key staff or trustees such as a chief executive or founder trustee
• 'survival' and 'rescue' - an at risk organisation merges with another with similar objectives so that its services continue. 

External drivers include:

• pressure from funders to reduce duplication
• government encouragement
• competition with similar organisations
• stakeholder opinion
• public perception of an overcrowded voluntary sector
• changing needs of end users
• dealing with an environment of uncertainty 
• greater influence on the external environment.

Mergers can take many forms. The most common types are:

Full merger by asset transfer

• Organisations A and B transfer their staff, assets and activities to a new organisation C with similar objectives. Organisation C continues as the operating entity.
• Organisation A transfers its staff, assets and activities to organisation B, with organisation B continuing as the operational entity. Organisation A then winds up or is kept as a shell. 

Merger by change of control

This is a form where one organisation takes control of the other. This happens by them becoming the sole member or trustee of the other, but without any transfer of assets and liabilities.

It is often a quicker process than a full merger and can be used as a short-term step. This gives the parent organisation the chance to find out more about the subsidiary organisation before moving to an asset transfer.

There may be reasons why it is preferred to keep the subsidiary organisation as separate on a longer-term basis. For example, ring-fencing certain assets or avoiding triggering certain liabilities.

The relationship may continue or may be a stage before the full merger. However it is not desirable to maintain two distinct legal structures each with their own separate boards, finances and employees.

It is possible for there to be more than two parties involved in a merger and the three options above can be adapted .