Trend report: what merger data tells us about the sector’s love stories

The data included in our analysis covers mergers between organisations owning more than 1,000 social units at the latest Statistical Data Return prior to their partnership. For this reason, mergers involving smaller partners are not included, with two exceptions to this rule (explained lower down).

2023 saw the largest average merged provider in the period from 2012, at just over 65,000 units, with 2022 second-highest, at 54,288 units. The lowest average merged group size came in 2020 with a figure of 16,008, just below 2015 with 17,631. The formation of First Garden Cities in 2020 through the merger of Howard Cottage Housing and Welwyn Garden City Housing Association was the main contributor to the year having a low combined group size, with the provider’s total units reaching 2,128 post-merger (now 2,276).

Sadly, not all potential merger activity leads to love. Many stories fail to make it past the first date as issues including stock condition and investment costs prevent the courtship from flourishing, with neither party willing to foot the bill.

Alternatively, sometimes the relationship does get off the ground and HAs enjoy a happy marriage until one or more parties decide they would be better off alone. Demergers may occur for various reasons, including one provider wanting to focus on local provision and delivery – the ‘it’s not you, it’s me’ of social housing separations.

Calendar years 2017 and 2018 saw the highest number of mergers in the time period, with 11 and 12 respectively. Michaela Booth, director of corporate finance and treasury at Altair, points out that merger activity tends to rise in times of financial pressure. In April 2016, the first year (of four) of a one per cent rent cut reduced surpluses and financial capacity across the sector.

“The rent cut also saw development schemes generally performing less well and the level of truly affordable homes had to be revisited by some, with potentially a greater reliance on the subsidy model of development and sales risk,” she adds.

The Grenfell Tower fire in June 2017 also led to reassessment of fire risk and investment in safety.

“Organisations came together with the aim to reduce costs and improve capacity to deliver their objectives, with a strong desire to work in partnership and create something better for their customers, reflecting the spike between 2017 and 2019,” Ms Booth says.

From 2012 until 2018, there was a gradual increase in the number of mergers per year, but this honeymoon stage of mergers ended as the pandemic hit and activity slowed.

Ms Booth says: “The inability to access homes and undertake works saw a reduction in asset management investment through this period, creating a backlog, and the inability to complete sales – for a period – saw the timing of receipts shift.”

The impact of Russia’s invasion of Ukraine and the Mini Budget hit the economy in 2022 just as investment in homes was ramping up and backlogs needed to be dealt with, Ms Booth says. “High interest rates, high inflation (increasing build and asset management costs), the rent cap and greater investment in existing assets all started to see a reduced capacity once again.”

Only four mergers completed during calendar year 2023, although a fifth – Mount Green and Stonewater – closed after the data was gathered. Ms Booth says she was surprised by the number, but adds that there are more to come this year.

The data covers mergers between organisations with 1,000 units or more with the exception of Welwyn Garden City Housing Association and Chapter 1 Charity, so some smaller deals will not be included.

The need to invest in homes, remain financially viable or meet expectations on lower surpluses could drive more partnerships, Ms Booth said, but on the other hand, improvements in the economy could lead to lower levels of mergers.

A final thought for a very modern love story over the period: polyamorous Peabody’s love rectangle (or love hexagon, if you include Catalyst’s prior mergers with Aldwyck and Rosebery). The London-based housing association has merged with four other providers in the past 10 years, one of which, Catalyst Housing, had itself merged with another two organisations prior to that relationship.

At the time of its first merger since 2012, with Gallions Housing, Peabody had 17,000 units and following its most recent merger in 2022 with Catalyst Housing, it now controls more than 92,000 units.