Mergers among nonprofits are common enough that few of us are more than one degree of separation away from one. Yet the mythology of mergers runs deep and wide. Familiar as it is, “the M-word” still provokes visceral emotional reactions.

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There are many misconceptions around this topic. To help de-mythify, let’s explore a few of them.

1.    The benefits are merger are obvious.

If asked, many would cite likely or possible benefits of merger, such as economies of scale, cost efficiencies, solving an organization’s financial problems, or fixing something else that’s broken.  

To varying degrees, these are potential benefits, but are not guaranteed. Each situation is unique, and only a detailed assessment can uncover the likely impact of a merger on the partner organizations. Further, all potential benefits are hypothetical until and unless they’re successfully implemented.  

So, reaping benefits requires a detailed assessment and execution of a good implementation plan.  

By the way, while merger may bring many benefits – increased specialization of staff, improved ability to recruit and retain staff, and greater organizational profile are several biggies – don’t count on it being a magical solution to chronic organizational problems.  Merger may help, but those problems may be ongoing headaches or obstacles to making a deal.

2.    The downsides of merger are obvious.

This is where hysteria can take over from rationality. Even the word “merger” can threaten folks – staff members, board members, clients or funders – and a simple question like, “Should we consider how a merger may help us meet our goals?” can trigger panic attacks. At this point the group will hear any number of permutations of “We’ll lose what makes us special,” without the benefit of analysis or deliberation. But it is a fair question in many cases, and it deserves processing.

After analysis, we may conclude that a merger does in fact have downsides that outweigh positives – but this is rarely obvious off the cuff. For example, financial costs and benefits require analysis. Implications for staffing, services or branding often depend on many variables and have many possible outcomes, subject to negotiation. These strategic issues are too important to dismiss out of hand.

3.    Merger means people will lose their jobs.

Consolidation can often result in elimination of redundant positions. But, nearly as often, all or most staff members of both partner organizations can remain employed post-merger.  It all depends on the particular situation, and what the parties negotiate.  

As Mr. Ashburner told us on day one of 11th grade Earth Science, “When you assume, you make an ass out of u and me.”  He even showed us graphically on the chalkboard how that works out.  (I wish I’d learned more than that from him, but alas....)

4.    Merger means our organization will lose its identity.

This is a common, and understandable, misconception. It’s true that some mergers consist of a larger organization assuming management of an entity formed through consolidation with a smaller entity. However, there are multiple scenarios in which the smaller entity can keep its identity, and even a degree of autonomy.

For example, a combined entity may keep both brands. This happens often in the business sector (for example, Chrysler bought Jeep and kept the brand).  

Another option, which we call consolidation with local autonomy, allows a subsidiary organization to remain essentially intact, which getting many benefits from association with the larger entity. See our recent white paper for more details.

5.    Two struggling organizations will be stronger through merger.

It’s possible, but history shows that this is an unlikely result of a merger of two weak entities.  Consolidation may actually hasten the demise.  

An exception would likely require a turnaround plan, major leadership changes, and an influx of capital. With the commitment of many stakeholders, it can happen.

And, at no extra charge, a Bonus Myth:

6.    Merger will be inevitably be chaotic.

Merger is a complex process, and includes pieces that can be messy. Some disruption to the status quo comes with the bargain. Chaos, however, usually results from either inadequate planning or poor implementation of a plan. It’s a preventable affliction.

The best way to approach merger is to consider it as a potential organizational strategy – a means to an end. What the end is will dictate many things, including the type of organizational structure(s) that will work best, what partners you should consider, what points should be negotiated, and ultimately whether merger is the right approach for all parties. 

Getting organizational merger right is hard work. But it’s a lot less heartache than getting it wrong – or not pursuing a merger that could have lasting benefits to your organization and your community.

Posted
AuthorScott Schaffer