Merger has gone mainstream in the nonprofit world. It’s taken awhile. Not long ago, it was often referred to in polite company as the unmentionable “m-word.” Recent economic trends have no doubt contributed to this shift. I believe that increased awareness of the practical benefits of mergers has also had an impact. As more mergers are visible, the concept becomes less theoretical and less threatening.
But this doesn’t mean that mergers are foolproof, or even the right solution to all problems. I lead a workshop on nonprofit partnership models, and often observe that, from my experience, roughly 80% of mergers are well-conceived, and 80% are poorly executed. Even the latter four-fifths can turn out well, albeit after a lot of pain. Then there are the 20% that were badly conceived in the first place—these consolidations may never lead to a thriving organization.
The keys are to (1) thoroughly vet the costs, benefits and risks of merger up-front, (2) thoughtfully plan for integration of the organizations, and (3) invest in that integration. This way you can avoid going down the wrong path, and make sure the right path is paved when you get there.
When is merger a good idea? Every situation is unique, but we can make some generalizations:
The combined entity will have greater programmatic and/or operational strength than the individual partners.
The new organization will have more bandwidth to focus on community needs, resource development, and growth.
The two partners share a collective vision of success and a general sense of strategies to get there.
The merged organization will have a robust and sustainable business model.
"Financial impact should nearly always be a benefit of merger..."
On the latter point, I’m aware of some consultants’ viewpoint that finances are not or need not be a critical factor in nonprofit mergers. I disagree. I believe financial impact is generally a benefit of successful mergers, and my experience suggests this is often a major motivator of the parties. To be sure, mergers may require additional short-term expenditures and monetary benefits may take awhile to manifest, but make no mistake—successful mergers forge black ink.
If you are considering a merger and believe at least some of the four points above are likely true, you may be onto something. Thorough programmatic, operational and financial analysis can help clarify the potential for a successful merger. You don’t need to prejudge the result in order to do an assessment. Further, the process of engaging in open dialogue and making this a shared project between you and your partner nonprofit can help build trust and a shared vision.
What happens if you find merger is not the solution or this is not the right time? You can always walk away; independent status is right for many organizations.
I offer this as a takeaway: a systematic decision-making process is a key to success for any type of restructuring.
Do you have an experience you’d like to share about a successful or unsuccessful merger? If so, I’d love to hear your thoughts—please send me an email.