How M&A could protect the social mission impacted by COVID-19

Why should you consider M&A?

For those organisations in the sector that do remain well funded, there is the opportunity to support and maintain the good work of those struggling organisations operating in their space, which is where mergers and acquisitions (M&A) should be considered. M&A would provide the struggling organisation with the support it requires to continue operating how it was and support causes it is passionate about. There are also a wide number of benefits for the acquiring organisation, such as increasing its charitable impact and integrating systems to improve synergies.

What risks are involved?

M&A is a simple, effective strategy but unfortunately not a risk-free one. We have identified a number of risks associated with M&A in the charity, not-for-profit and social enterprise sectors, including:

• Reputation uncertainty, alignment of mission and board buy in
• Integration of people and cultures – e.g. management bandwidth and TUPE
• Pension commitments including local government schemes
• Historic tax liabilities – e.g. IR35 and VAT
• Financial viability
• Mismanagement of funds
• Accounting records and reporting deficiencies
• Fraud risk
• Donor retention post transaction
• Loss of key personnel

We foresee an increased focus on cash flow and forecasting due to the pandemic. Scrutinising these risks has never been more important due to the political and economic uncertainty on the horizon.

How we can help

Due diligence for mergers and acquisitions

Our Corporate Finance team has extensive experience of advising on mergers and acquisitions in the charity, not-for-profit and social enterprise sectors. While money does not always change hands for these transactions, risk is always a key consideration and this is where our experts provide invaluable support. 

Working with our specialist charity and not-for-profit team, our due diligence advice helps the parties involved to identify, understand and mitigate these risks, which enables all stakeholders to not only satisfy any statutory and legal responsibilities, but more importantly enhance the support that the organisations can provide to the cause.

If these hurdles can be overcome, M&A can help those struggling with funding during and after COVID-19 by becoming part of a well-funded organisation. These organisations will be presented with opportunities, which are not only very attractive financially but can also enhance growth and raise awareness for the cause.

Other strategic options

M&A is part of a range of options for organisations in the sector. Other strategic options, which could solve the issues mentioned above, include back office sharing and supply chain integration.

Charities and Social Enterprises should also consider if their work involves development or innovation of any kind. If this is the case, you may be eligible to submit an R&D tax credit claim, which could provide up to 33% cashback on any qualifying expenditure.

Additionally, it is worth reviewing the terms of any grants rewarded and ensuring where possible you have asked for extensions if you are struggling to fulfil the terms due to furloughing staff or lack of additional donations.

For more information on the above or for advice tailored to your organisation, please contact Alex Judd or fill out the form below and one of our M&A experts will be in touch.