Exploring Success Strategies for Nonprofit Mergers

 

The number of US nonprofits actually grew 7 percent between 2007 and 2011 to 1.58 million, an average of nearly 40 nonprofits per US zip code.   But the rate of mergers in the nonprofit sector has remained flat.  This is unfortunate.  Mergers can make good sense for many nonprofit organizations.  But there are challenges on the way to achieving success.  Below is a checklist from some of the best of the “nonprofit merger” literature to help Boards and Executives get started thinking about this opportunity.

Nonprofit Mergers Most Likely to Succeed

  1. Done for strategic reasons
    • Combining separate competencies
    • Joining contiguous or related geographical areas
    • Join a larger related organization to preserve
    • Combine different services for same target population
  2. Done in response to external forces:
    • Competitors
    • Shifts in government policies and practices
    • Need for financial stability
      • Through scale
      • Through more financially stable partner
  3. Done with prior experience:
    • Pre-existing collaborative relationship
    • History of previous mergers
    • Navigation with experienced 3rd party facilitators or “honest brokers” who can mediate and guide both parties
  4. Done with strong leadership
    • Effective Board advocacy and participation
    • Structured planning process to step through the merge stages
  5. Done between
    • Organizations of significantly different size
    • Typically organizations under $3MM and organizations over $10MM
  6. Done in a market where there are barriers to organic growth
    • A relatively saturated market, with the target population already covered
    • A service requiring much investment in time to grow provider networks and in facilities to serve the specific population
    • Situations where “deciders” (parents, referring organizations, state and local governmental agencies) want a strong local brand
    • A service that is highly regulated requiring facilities and staff that meet rigorous licensing and accreditation.
  7. Done with the help of philanthropic leadership
    • Philanthropy provides information to nonprofits on how to think about mergers
    • Philanthropy offers assistance to identify potential merger opportunities
    • Philanthropy plays a “matchmaker” role between nonprofits
    • Philanthropy provides funding for facilitating a joint process of exploring options and creating a roadmap by the potential merge organizations
    • Philanthropy provides funding for due diligence and post-merger integration
    • Intermediaries experienced with nonprofits and with M&A exist to assist

Benefits of Merger & Acquisition for Nonprofits

  1. Improve the quality of existing services (e.g., enhance programs, training, and supervision)
  2. Improve the efficiency in existing services (e.g., use assets more effectively, reduce overhead)
  3. Increase funding (e.g., gain access to better fundraising capabilities or build effective new relationships)
  4. Develop new skills (e.g., acquire new program expertise, leadership capacities)
  5. Enter new geographies (e.g., overcome barriers to entry, build community relationships)

 

Warning Signs of Potential Problems Ahead

  1. Motivated primarily by fiscal distress and/or leadership change
  2. Legacy, founder and mission constraints
  3. Branding and naming concerns
  4. Fear of excessive debt risk

Stumbling Blocks to Anticipate

  1. Getting the boards aligned (data, culture, communication, transparency, trust, shared vision)
  2. Finding roles for senior staff
  3. Blending the brands

Why Aren’t There More Mergers

  1. Lack of knowledge about when and how to think about mergers and acquisitions.
  2. Dearth of funding for due diligence and post-merger integration
  3. Lack of matchmakers to create an efficient “organizational marketplace” through which nonprofits could explore potential merger options.
  4. Tendency to look at mergers reactively, as a route out of financial distress or leadership vacuums instead of proactively as an effective growth strategy.

 

When In Doubt, Consider Alternatives To Merging

  1. Collaboration
  2. Partnering on projects
  3. Share information and best practices
  4. Formal partnership
  5. Joint venture
  6. Share space, services, staff, revenue, marketing
  7. Memorandums of understanding
  8. Talk, get acquainted

 

For more information, see:

Nonprofit Mergers: New Study Sees Strategy and Success by Don Haider, in NPQ, Nonprofit Quarterly, Jan. 11, 2017  https://nonprofitquarterly.org/2017/01/11/nonprofit-mergers-look-contexts-indicators-success/

Why Nonprofit Mergers Continue to Lag  by Katie Smith Milway, Maria Orozco, & Cristina Botero, Bridgespan, in Stanford Social Innovation Review, Spring 2014    https://ssir.org/articles/entry/why_nonprofit_mergers_continue_to_lag

Nonprofit Collaboration Database (http://grantspace.org/collaboration)  in Foundation Center website.  Provides detailed information on more than 650 collaborations nominated for the Lodestar Foundation Collaboration Prize and other collaborations self-reported by participants.

Success Factors in Nonprofit Mergers” , (http://www.minnesotanonprofits.org/events-training/2012-joint-annual-conference-handouts/Nonprofit_Realignment_2.pdf)  a Study of 41 Minnesota nonprofit mergers, 1999-2010, by MAP for nonprofits and Wilder Foundation,  July 2012

What Do We Know About Nonprofit Mergers?, (http://www.mapfornonprofits.org/wp-content/uploads/2013/10/What-do-we-know-about-nonprofit-mergers.pdf   )  Findings from a literature review, focus group and key informant interviews. By  Wilder Research and MAP for Nonprofits, March 2011.

The Nonprofit Mergers Workbooks by La Piana Consulting http://www.lapiana.org/insights-for-the-sector/insights/collaboration-and-strategic-restructuring/books  Part 1:  The Leader’s Guide to Considering, Negotiating, and Executing a Merger – (See more at: http://www.lapiana.org/insights-for-the-sector/insights/collaboration-and-strategic-restructuring/books#sthash.J4aT7WDN.dpuf)   Part 2  Unifying the Organization after a Merger

An Example of Strategic Mergers in the Nonprofit Sector: Arizona Children’s Association,
by  Jean Butzen, in Stanford Social Innovation Review, Dec. 12, 2009  https://ssir.org/articles/entry/an_example_of_strategic_mergers_in_the_nonprofit_sector_arizona_childrens_a

Bringing Mergers and Acquisitions to the Nonprofit Mainstream New research from Bridgespan suggests the benefits of M&A are not just for the for-profit sector.  What donors need to know.  http://www.philanthropyroundtable.org/topic/excellence in_philanthropy/bringing_mergers_and_acquisitions_to_the nonprofit_mainstream_ By Alex Cortez, William Foster, and Katie Smith Milway;  in Philanthropy, Spring 2009

M&A In The Nonprofit Sector: Managing Merger Negotiations and Integration, by David La Piana, Michaela Hayes, 2006 in http://www.emeraldinsight.com/doi/abs/10.1108/10878570510586793