Third sector organisations are looking for ways to transform and streamline their services in order to survive in the financially pressured world, a report by Connell Consulting shows. As finding funding is an increased issue, non-profits need to find capital through investments, partnerships or mergers.
Management consulting firm Connell Consulting recently released its ‘HealthInvestor March 2015: Charity auction’ report, which looks into the changing role of not-for-profits and charitable institutions (third sector organisations) providing of health and social care in the UK. According to the firm, third sector organisations are looking to streamline their services and divest non-core care assets as a response to the political and financial pressures that continue to squeeze the sector.
The most cited challenge in the third sector to necessitate a transformation is funding, which is an issue for almost half (42%) of third sector organisations*, followed by statutory cuts (22%) and NHS restructure (19%). The issue of funding is, according to Connell Consulting, likely exacerbated by their poor relationships with commissioners, with the majority of third sector organisations saying they are poorly engaged with public sector organisations.
The report states that in order to survive, the third sector needs to consider capital raising through private investment or strategic options such as partnerships, mergers and asset sales. The researchers believe that sales of third sector assets of health and social care providers will become more common. In 2014, already more than half (53%) of all merger or acquisition (M&A) transactions that took place were in the health and social care sector. The providers most involved in M&A’s were mental health organisations (32%), disabilities (30%) and medical providers (18%).
Of the registered services provided by healthcare organisations, only 17% are still owned by the third sector, with three-quarters of services owned by private sector organisations and 8% by public organisations.
Investing in the third sector offers an interesting opportunity for investment funds from two key perspectives, the report states. The first is the social consideration. The rise of impact reporting, where non-financial outcomes are taken into consideration, allows funds to have a lower return on cash balanced by a high social return. The second consideration is still motivated solely by financial return. The majority of third sector organisations has the potential to obtain substantial efficiency savings, for instance through the application of a more assertive business plan or expansion of the third sector services.
The consulting firm concludes: “In the hands of the right investor, the expertise and reputation of a third sector provider, combined with private capital and commercial acumen could well be a powerful combination.”
* Connell Consulting bases this on the results of Charity Leaders Network ACEVO’s survey of 54 third sector providers of health and social care.