Ensuring a charity merger is successful
Charity mergers have always provided a vital strategic option for many charities. In the UK, the trend towards charity mergers grew sharply in 2024, as charities responded to a host of external challenges, including the effect of inflation on operating costs, funding shortages and rising public demand for services.
This surge appears to be more than a temporary spike; it reflects a broader shift in how charities are adapting to maintain sustainability and secure their impact, and long term effectiveness.
Faced with a growing number of uncertainties, many charities are reassessing how they operate. While some look to merger out of financial necessity and to mitigate the risk of closure, others are pursuing merger proactively as a deliberate strategy to strengthen their operational platform, improve economies of scale and diversify their funding streams.
Why more mergers
A well executed charity merger can provide multiple benefits. By bringing together resources, staff and infrastructure, merging charities often achieve cost savings through economies of scale and elimination of duplicated functions. This can free up resources for frontline services, where impact is most visible and needed.
In addition to cost savings, shared expertise is another major advantage. Merging charities can draw on each other’s strengths, from specialised knowledge and community networks to governance experience and fundraising capabilities. This consolidation can lead to more effective service delivery, better strategic planning and ultimately, more positive outcomes for beneficiaries.
Mergers also provide an opportunity for charities to increase their visibility and influence. By combining reputations and reach, the merged organisation may become a more attractive partner for funders, policymakers and other stakeholders.
Types of charity mergers
Charity mergers can take several legal and structural forms, depending on the objectives and capabilities of the charities involved. The most common models include:
ASSET TRANSFER AND WIND-UP. One or more charities transfer all of their assets and liabilities to another, larger or more stable charity, and are subsequently wound down.
CREATION OF A NEW ENTITY. Two or more charities dissolve and transfer their assets to form a completely new charity with a combined mission and structure.
TAKEOVER OR CONTROL TRANSFER. One charity assumes legal and operational control of another, without creating a new entity.
Each model has its own complexities and implications, but all require a thoughtful and transparent approach to ensure the interests of the charities and most importantly, their beneficiaries, are protected and supported throughout the process.
Alignment and compatibility
Regardless of why a merger is being considered, it is essential that all parties undertake a strategic assessment to ensure alignment. Mergers should not simply be seen as a survival mechanism, but as a pathway to greater impact and longevity. Without careful planning and evaluation, there's a risk that a merger could dilute mission focus or create internal conflict and damage the parties involved.
Trustees and senior leaders must ensure that the charities share compatible values, objectives and visions for the future. This assessment should begin with a review of each charity’s governing documents, usually a constitution or articles of association, to confirm that their charitable purposes are sufficiently aligned.
This should be followed by an assessment of each charity’s identity and culture. Differences in leadership styles, service models and organisational ethos must be acknowledged and addressed early to avoid a disruptive or unsuccessful merger.
Key questions to explore include:
- What is the primary goal of the merger?
- Do the missions, values and objectives of both charities align?
- Could there be a clash in organisational cultures, and how will it be managed?
- How will staff roles, volunteer engagement and leadership responsibilities be impacted?
- What changes will beneficiaries experience, and how will continuity of service be ensured?
- How will the public perceive the merger, and what communication strategies will be used?
Once these issues are discussed and broadly agreed upon, they can be captured in a memorandum of understanding or heads of terms. This non-binding document outlines the shared vision and sets the tone for the more detailed merger process to come. It serves to bring together the intention of the parties before the legal paperwork is commenced.
Due diligence is critical
Following the initial agreement to merge, a comprehensive due diligence process is essential. This is where both parties take a deep dive into each other’s finances, operations and legal standing to identify any risks, liabilities or areas of concern.
Financial due diligence includes reviewing income sources, reserves, liabilities and any restrictions on the use of funds. Legal and operational reviews should examine employment contracts, property ownership, insurance policies, data protection practices, pending litigation and tax compliance. It is especially important to uncover any unresolved disputes, funding clawbacks, or employment-related risks.
This stage can surface issues that may influence the final decision or require specific terms in the merger agreement. It also builds trust between the charities and ensures that all stakeholders understand what they are committing to.
Stakeholders and communication
As the merger discussions progress, it becomes increasingly important to engage stakeholders which includes staff, volunteers, service users, funders and regulators. Transparent communication helps manage expectations and fosters support for the changes ahead.
In particular, employees should be informed of the merger early to prepare for potential changes in reporting lines, responsibilities or roles. Involving employees in the integration process not only improves morale but also enhances the chances of a successful cultural merging.
Similarly, funders should be briefed on how the merger will affect programme delivery, reporting and organisational capacity. Their confidence and continued support will be vital post-merger and in the continuance of the programmes.
A well planned public relations strategy can also be helpful, especially if the charities have distinct public identities or strong community ties. Messaging should emphasise the benefits of the merger: improved services, greater reach, and increased resilience. This is to reassure the public and stakeholders that the merger is in everyone’s best interest, and extensive consideration has been made as regards the benefits of it.
Formalisation and documentation
Once due diligence is complete and all stakeholders have been consulted, the merger can move to the formal legal phase. This involves drafting the necessary transfer agreements, updated employment contracts, and any governing document amendments required by the Charity Commission.
Legal advice is highly recommended during this phase to ensure compliance with charity law, employment law, data protection and tax obligations. The process must be managed carefully to meet regulatory requirements and ensure a smooth transition.
