In the previous installment of our series on nonprofit collaborations, we went over some of the things your nonprofit needs to know about networks and coalitions. This summer, we've continued our discussion on collaborations with a seminar held on July 27, Nonprofit Collaborations: Focus on Mergers. In this program, our panelists addressed the tough economic realities that have led many nonprofits to think about merging, as well as the mission-oriented goals that can often bring about a merger.
Our expert panel was moderated by Sandra Lamb, president and CEO of Lamb Advisors, and featured Ethan Kahn, audit manager at MBAF-ERE CPAs, LLC; Linda S. Manley, legal director at the Lawyers Alliance for New York; and Jill O'Donnell-Tormey, executive director at the Cancer Research Institute. The presenters stressed that while a merger can be extremely beneficial for your organization's financial well-being and your mission, it is also a complicated, costly legal undertaking, fraught with obstacles along the way. Below are a few of the things they recommend that you think about when considering a merger, and ideas on what can make the process more successful.
Why do nonprofits merge?
Organizations choose to merge for several different reasons. Often nonprofits find that their programs can become more effective and more efficient through merging; the strongest aspects of each organization's programmatic work can be retained after a merger, and the combined resources and shared knowledge of each preexisting nonprofit can produce better results. Organizations can also find mergers helpful for extending the reach of their work, both in terms of mission and in terms of geography, if the merging groups have been operating in different locations and want to broaden the scope of their efforts.
In addition, at a time when there are so many nonprofits performing similar work and competing for funding, mergers can be a logical remedy for what often turns out to be a duplication of services. Nonprofits that have merged can provide the same types of services that they have offered in the past, but with consolidated staffs and resources. As a result, it can become easier to secure funding.
Finally, many organizations choose to merge with the goal of saving on overhead expenses, pooling resources as a means of obtaining financial stability. When thinking about taking these kinds of steps, however, keep in mind that a merger requires one organization to dissolve and cede full control to another nonprofit. If your primary goal is to form a partnership among multiple groups, you may want to opt for a different type of collaboration that allows for more autonomy, such as a joint venture or a strategic alliance. But if your mission would be best achieved by becoming part of a new entity, a merger could be a good potential option.
What types of obstacles might come up?
- Does your staff support the merger? The whole point of merging is that it's supposed to help your organization become more effective, but you can't be very effective if your staff is unhappy. Understandably, employees may be uncomfortable with the news of a merger. They will be worried about the possibility of layoffs, or having a new leader in charge, or dramatic changes in programs or office procedures. Your staff is what makes your organization run, so you'll need to take their concerns under serious consideration when planning a merger.
- Will the merger take longer than you expect? A merger is an extremely complex, thorny undertaking, so you can't expect negotiations to be finished overnight. Be aware that, generally, a typical merger takes about 9-18 months to complete.
- Will the merger be expensive? Considering that, in addition to goals of improving programs and achieving missions more effectively, nonprofits frequently merge in order to save money, be sure that when all is said and done you actually will be saving money.
Keep in mind that there will be extensive legal costs, audits, and assessments, plus you may have to move offices, or you may need to change your signage, logos, infrastructure, and web site. Make sure that whatever cost savings you're anticipating from a merger won't be offset by the actual costs of the merging process itself.
- Are your government grants transferable? If you normally receive government funding, don't assume that you'll still be able to use the exact same grants that you were receiving prior to the merger. You may need to apply for different types of grants this time around, you may have to go through different agencies, and you'll definitely need to keep government funders informed about the changes taking place in your organization.
- Are you taking on liabilities? When you merge with another group, you're taking the bad with the good. While the other nonprofit might have some great assets working in its favor, it might just as easily be a financial mess, and when you merge, their mess becomes your mess.
Take a long, hard look at each other's finances before embarking on a merger, to make sure it's going to be worthwhile!
- What are the other logistics of joining two organizations under one roof? If you're blending programs, staff members, and office procedures from two nonprofits into one new organization, certain aspects of the office's infrastructure can become complicated in the process. If, as separate nonprofits, each office has been using different computer programs, different accounting systems, different HR policies, etc., you have to figure out which ones you're going to retain and which ones you're going to discontinue, keeping in mind the cost of each and the staff's preferences for each as you do so.
As an example, let's say that prior to the merger, one organization offers its employees slightly expensive, high-quality health insurance, while the other organization has only been able to offer relatively austere health coverage for its workers. When you merge, the employees who have been accustomed to the top-notch health insurance are not going to be happy if you switch to the less expensive coverage; in its newly merged form, can your organization afford to give everyone the more expensive insurance, or will the costs be too high? These are the kinds of things you have to consider before deciding that a merger will actually be a good choice.
What can be done to facilitate the process?
- Keep your funders in the loop. If you want to improve the likelihood that your funders will continue to fund you after a merger, you need to keep them informed as you're exploring and implementing your merger. Also, when it comes to handling the costs of merging, many funders are very interested in supporting nonprofit mergers, and they might be able to help you through the process. They can offer you training and advice, and some can even provide you with grants to cover the costs of your merger.
- Get your staff's support. If you want to keep your staff's morale and trust at optimal levels throughout this complicated time, you have to keep the lines of communication open. Be honest about any major changes, such as layoffs, that may come with the merger, otherwise misinformation can spread amongst the staff and make it more difficult to manage the merger effectively.
- Pay attention to organizational culture. One of the common mantras of nonprofit mergers is "Mergers happen for financial reasons but fail for people reasons." Have strong leaders in place for the newly merged organization, and when deciding which staff members to retain after the merger, think about how their positions might change and how well the staff members will be able to work alongside one another and with any new leadership.
- Consider a merger consultant. To make things as smooth as they can realistically be, think about bringing in a consultant who has worked on mergers before and knows how to proceed with such a complicated venture. This will add to your total costs, but you'll be less likely to make major mistakes along the way, and as mentioned earlier, you may be able to find a grant to help you cover any added expenses.
Learning more about mergers
The information relayed above is only the tip of the iceberg when it comes to nonprofit mergers. To learn more, have a look at the following resources:
The M Word: A Board Member's Guide to Mergers
This report from CompassPoint discusses why nonprofits choose to merge, why they choose not to merge, and how you can merge effectively.
MergeMinnesota: Nonprofit Merger as an Opportunity for Survival and Growth
This publication has tons of incredibly useful information not just for Minnesota nonprofits, but for any nonprofits looking into mergers. The report includes best practices, a list of common mistakes, a 10-step merger model, checklists, and sample documents.
Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times
This article from Bridgespan gives an excellent overview of how a merger can have the potential for improving nonprofit effectiveness.
Nonprofit Mergers and Alliances
Visit the Foundation Center library to browse this book from Thomas McLaughlin, in which he discusses all types of collaborations, and explains the major differences between nonprofit mergers and for-profit mergers.
Nonprofit Mergers Workbook
This book from David La Piana can also be found in our library, and features worksheets, checklists, resource lists, sample documents, and more for any nonprofit getting started in a merger.
In addition, a search on Grantspace's Knowledge Base under "mergers" will bring up a wide variety of resources for you to review. To start out, try listening to our 20-minute Philanthropy Chat with Thomas McLaughlin on mergers and alliances, or read our Knowledge Base article, "Where can I find information about collaboration and other kinds of strategic alliances?"
Finally, stay tuned for the next installment of our event series on this subject - Nonprofit Collaborations: The Funder Perspective will be coming up on September 23.
-- Tracy Kaufman, Library Assistant, Foundation Center-New York