When should we consider a merger or acquisition?

It’s not just groups facing an economic downturn that look into the possibility of a merger. Heightened competition throughout the nonprofit sector for top-notch staff, attractive benefits, political clout, media recognition, you name it often prompts healthy, wealthy groups to seek partners with whom they can achieve even greater success.

Technically speaking, a merger involves two partners that agree to integrate their processes, programs, governance, and staff; a new name is often selected to reflect the fresh start being made by both groups. An acquisition refers to one organization gaining control of another and folding the latter into its own structure.

Before even mentioning the word merger in the same breath as another organization’s name, consider collaborating in some way . If the partnership or alliance goes smoothly, thanks to similar missions, cultures, and goals, a merger might be an option down the road.

A merger involves restructuring both organizations and integrating all functions. For instance, merging your nonprofit with another is likely to require delicate negotiation regarding the number (and election process) of board members. You may need to set up a rotation system for the first few years to ensure that representatives of both groups have top leadership roles. Other key decisions and possible sticking points will involve staffing, finances, property and facilities, fundraising activities, programs, and services.

Key Considerations

Take the time to engage in serious debates about the pros and cons of a merger and in frank discussions about every detail of governance and operations. A board’s failure to agree on these points in advance can seriously threaten the success of the new organization. Answering the following questions can help you clarify your organization’s unique situation.

What is our goal? Do you seek organizational growth, a greater diversity of services, a wider geographic scope, a larger market, an enhanced public profile? All of those are valid reasons for a merger, as are realizing greater economies of scale and achieving a greater concentration on core competencies (doing more of what you do best).

If you are contemplating a merger because the organization may collapse financially without one, state that as well. This self-assessment should also include an honest appraisal of your organization’s strengths and weaknesses, what makes it an attractive merger partner, and what the potential drawbacks are.

Poll all the board members, and you might be surprised by the range of responses. Only after leaders reach unity on organizational goals and agree on the results they expect from a merger can they approach another group at the negotiating table.

How compatible are our missions? Chances are, you are already aware of your potential partner’s history, reputation, programs, and financial situation. Still, you’ll need to conduct due diligence and thoroughly investigate the other group.

Be sure to pay attention to the other organization’s mission. Is it similar to your own? Complementary? Even if the groups employ very different strategies, are they, at heart, focused on the same ends? Mergers can be challenging enough on their own; you need a mission on which both can agree to be the island in what may be a turbulent sea at times.

What do stakeholders think? Conduct surveys and focus groups with the staff, community members, business leaders, funders, clients, customers, members, and so forth. Ask for their opinions on your organization’s current situation, including its strengths and weaknesses. Identify concerns they may have about the organization potentially losing its identity through a merger or, conversely, what possibilities might open up if your group joined forces with another.

During the research phase, some groups find that, to the wider community, they are virtually indistinguishable from their competitors anyway so a merger would simply clear up existing confusion. Others discover emotions that run so deep that a merger would alienate key stakeholders. You won’t know unless you ask.

What are the organizational cultures? As objectively as possible, assess the values that guide the way each organization currently does business. Determine what your organization values and rewards (for instance, flexibility, risk taking, personal development, or cross-departmental initiatives). What is your perception of the other group? How manageable might the differences be?

Certainly each organization will have its own procedures and traditions where board and staff are concerned. Assuming that the bedrock beliefs that drive each group are similar, such as the mission, then any feelings of “us versus them” should subside given enough time and effort by all parties. Organizational experts say the best way to create a new culture is through communicating honestly and handling conflict (instead of avoiding it). Ideally, what emerges is a new culture entirely, one with its own traditions.

Who can help us through the process? An outside perspective is invaluable, especially when emotions run high in the boardroom and among staff members who don’t know what’s happening behind those closed doors. After all, a merger might mean that a chief executive, other employees, and some board members won’t have roles within the new organization.

Hire an attorney or a consultant who has an expertise in nonprofit mergers. He or she will ask questions and raise important issues that might otherwise be ignored and can assist with developing an implementation timetable should the merger occur. Also appoint a merger negotiations committee with equal representation from both groups (including the chief executives) to work through the many issues.

One final caveat: mergers cost money. You’ll need to pay attorneys, accountants, organizational consultants, printers, and information technology experts, to name just a few. You may need to craft an attractive severance package for your chief executive. In addition, there are the hidden costs, such as the time devoted by staff members to working out details, handling rumors, or simply being too distracted to do their jobs effectively. So if the motivating factor is short-term economic survival, broaden your perspective. A merger is for the long term.

SUQQESTED ACTION STEPS

1. Board chair, invite board chairs from similar types of organizations in your area to meet informally to discuss potential areas of collaboration or coordinated activities.

2. Board members, if a merger is a strong possibility for your organization, appoint a board-level task force to conduct due diligence on the other group and develop recommendations

for a smooth blending of the two staffs, cultures, and operational structures.

3. Board members, consider hiring a consultant to facilitate merger discussions and help bring the two groups together with minimal problems.