Nonprofit collaboration has been a popular buzzword for at least the last decade but today’s perfect storm of a shaky economy, shrinking government funding, and a the retirement of the baby boomers is making the prospect of a merger a more frequent topic in nonprofit boardrooms.
When most people think of a nonprofit merger, they think of a strong organization taking over a failing organization. However, mergers are not always born out of dysfunction. The best mergers consist of two strong organizations motivated by shared opportunity.
A merger with the right partner can instantly add complementary programs, eliminate redundancy and create economies of scale. The right merger partner can also strengthen competitive positions to apply for grants and contracts as well as expand programmatic capabilities and service areas.
More and more, we see mergers motivated by succession planning. This trend is a result of the widening nonprofit leadership gap. Retiring nonprofit executives are often more comfortable leaving their organization in the hands of a respected peer with a proven track record than entrusting it to whomever the executive recruiting firm advises the Board to hire.
- Strong Leadership. The Boards and executives of both organizations must be strongly and visibly committed to the merger and be willing to check their egos at the door. The focus should be maximizing the impact on the organizations’ shared mission and not the impact on any one program or individual.
- Confront the Elephants in the Room at the Beginning. Tackle potential “deal breakers” such as organization name, board representation, disposition of key assets and programs, and the executive positions early on. There is no point expending the time, resources, and emotional energy on a transaction that is not going to happen.
- Communication. Ensure coordinated communication from both entities. Communicating with key funders, staff, clients and other stakeholders early on can help secure buy-in and reduce anxiety.
- Commitment. The merger negotiation process can be complicated, resource intensive, and time consuming. Once the deal is negotiated, conducting due diligence, gaining stakeholders support, obtaining third party approvals and consents, and aligning the organizations’ programs and administrative functions can take 6 to 12 months.
While the need to replace a strong leader may open the door to merger discussions, at the end of the day, the decision to merge should stand on its own. The true hallmark of a merger’s success is an organization that can achieve a greater impact than its predecessors would have been able to achieve on their own.
Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.