Nonprofits merge for lots of reasons: successful, smaller-sized organizations may join with a competitor to expand their reach. A larger, more established organization may seek a smaller organization that has stellar programming and established connections with a target community. A group that is winding down may want its programming to live on and donates its curriculum, website, or other intellectual property to an organization with a similar mission.
A merger may be a smart move at some point in the life of your project – but it can’t be done in haste. You wouldn’t marry someone you hardly know, would you? Better to date and get to know your future partner before you are legally bound.
Here are the major issues to explore before any kind of agreement is inked:
First Ask Why
Too often people look to mergers to solve a particular problem, without thinking about the larger strategic purpose and what they ultimately want out of a merger. How will a merger better enable you to work towards your mission? How will you be stronger together? What does a merger mean for your program(s), and how will those changes benefit the people you serve? Will the merger expand your territory or improve your offerings? Does it offer economies of scale so that you can offer more comprehensive programming, or more services to more people? Be sure you can clearly articulate the point of a merger, and what you hope to achieve.
Once you’re clear about your desired outcomes, make sure the other organization sees and wants the same things. Sharing the same vision will help you get past any rough spots along the way. Remember: managing expectations and having clear communications will be key to the success of the transition.
Mission Alignment and Fit
Take some time to get to know the executive director and members of the board of the organization yours may merge with. Do they have the same values as you? What are the strengths and weaknesses of each organization and what is gained through a merger? Will you complement each other? Will you retain your identity, or will you become a program of the organization and be absorbed under their name? Who will have final say in decision-making?
Consider how you run your organization and what your values are. Does your culture align with the other organization’s? Are you both formal or casual? What time do employees get to work? How much autonomy do they have? Are your strategic plans in alignment? How are strategic goals met if you two combine; what conflicts may arise? Will your employees receive a comparable benefits package and vacation time?
Are you merging completely or will you become a program of a larger organization? Will a new structure have to be created because your organization is joining or will you be absorbed into the larger organization? Will you all be working in the same location? Do the facilities meet the needs of your programs?
Will some employees need to be let go because their job has become redundant? Or will they be restructured into new roles? Who will report to whom? Will there be equal seniority or lead decision makers? Be thoughtful about change management – the way in which you engage employees and board members and all stakeholders in the merger process. They can put up major roadblocks or torpedo the deal if they are firmly opposed to it.
Once you’ve merged, will your program change in some way, and will those changes benefit the people you serve? Are you stronger together and will the merger expand your territory or improve your offerings? Does it offer economies of scale so that you can offer things in a more economical way?
A merger will include debts and liabilities – all of them. What are you taking on by merging with another organization? Rather than meld two organizations as equal partners, is it easier for one to absorb key programs and materials of the other, in exchange for taking over the cost of sustaining them? Also important to consider is what happens to your current pool of funds and contracts. Will they be absorbed by the new entity or will they be used strictly for your program?
If you are moving out of fiscal sponsorship to merge with another organization, will your advisory board members become a part of the board of directors and, if so, do they understand their expanded responsibilities and liability? Alternatively, if the organization with which you’re merging doesn’t wish to add new board members, you’ll want to explore new ways of involving those important supporters with your work. Managing expectations and having clear communications is key to maintaining those relationships.
It’s a mistake to think of communications only after a merger has been planned. Instead, consider both internal and external communications from the beginning. How will you connect with staff, board, and key stakeholders inside the organization throughout the process? How will you inform and educate your clients, constituents, funders, and other external stakeholders on what is happening and how it will benefit your mission? If you are changing your brand or identity, it is critical to explain to your stakeholders how you will now be known, how you can be found, and what changes they can expect going forward.
Third Party Counsel
Enlisting a third party to facilitate the process can help you think it through and navigate unforeseen sticky issues. While lawyers may complete the final paperwork, legal advice is expensive so it’s best to hammer out a broad agreement among key stakeholders (boards and senior staff) before bringing them on board. You’ll want to find someone who not only has experience with mergers, but also understands change management and “gets” your organizations so they can help chart the process and guide you through it.
Foundation grants may be available for merger costs – check with your current or past funders to see if they have discretionary or capacity-building funds for this kind of purpose. Additionally, the Weingart Foundation, California Community Foundation, and Ralph M. Parsons Foundation have created the Nonprofit Sustainability Initiative in order to fund nonprofits’ strategic restructuring efforts and provide expert consultation. No commitment to a merger is required.
Culture clash: If a strict, hierarchal organization decides to merge with an organization structured similar to a start-up with a “we are all the boss” mentality, issues are bound to arise. It’s not impossible, but it definitely won’t be easy.
Financial obfuscation: If an executive director and their board are reluctant to reveal their financials, liabilities or debts, RUN! Be sure to see documentation and have your legal counsel review it as well.
Poor communication: Both parties should be honest about how they operate, what their intentions are and what they want out of the merger. If the potential partner isn’t willing to bare all, it’s doubtful you’ll be able to.
Peer pressure: If the other organization is in too much of a hurry to merge, they could be hiding a liability or a pending problem and see you as a white knight. Be sure to probe and understand this sense of urgency.
Revolving door: If key staff members are suddenly abandoning ship it’s best to inquire why and seriously consider whether you’d still like to proceed.
There are a multitude of reasons why a fiscally sponsored project might consider a merger. Taking the time to fully and thoughtfully explore all aspects of this kind of transition – and there are many! – and being absolutely clear and in agreement with your potential partner about the desired outcome, will help make for a smoother, more successful transition.