Five Steps to Take Before Your Nonprofit Merges

For several months, I have been working on a nonprofit capacity project exploring mergers. The following are insights from the project’s readings and discussions that will help you explore mergers. Even if you decide a merger isn’t a good idea, you will find the concepts and the process useful because working with other nonprofits increases resources, especially funding for your mission and causes supporting your outcomes. Also, the insights apply to more than mergers; they apply to all nonprofit partnerships.

1. Understand Your Potential to Merge and Other Options

While long perceived as a way to help struggling nonprofits survive, Alexander Cortez, William Foster, and Katie Smith Milway, in their article, “Nonprofit M & A: More Than A Tool for Tough Times,” share that mergers can “strengthen your effectiveness, spread best practices, expand your reach… and do all of this more cost-effectively.” The authors offer examples of healthy organizations that seek and court merger opportunities to add services or offer them in new locations.

Have you ever looked at other nonprofits and asked, “Whom might we merge with to become stronger and more effective?” It might be a good time to explore this opportunity.

To expand your thinking about mergers, explore how others use mergers to create more results. Start with this database at Candid.It’s based on data from submissions to the Lodestar Foundation’s Collaboration Prize and four types of collaborations: back-office consolidation, joint programming, mergers, and alliances.  Set your goal to see mergers as one option and from a big picture perspective to inspire new possibilities for your work and nonprofit.

2. Identify the Potential Benefits for You 

The benefits you find for your organization to merge must outweigh the work of collaborating. Otherwise, why proceed? Interactive nonprofit relationships, especially mergers, require substantial efforts to succeed. (See Nonprofit Merger Checklist: The Ten Steps for a summary.) Nonprofit leaders are busy enough without new burdens. However, to remain competitive, all nonprofit leaders find time for activities to improve outcomes. Knowing the benefits and your odds of achieving them energizes you for the work ahead. Common merger benefits include:

• To create more and better outcomes
• To increase your service delivery efficiency
• To generate funding
• To stabilize your finances  and improve your sustainability
• To obtain more market share
• To stop competing
• To create a staff large enough so job functions can be specialized, you can hire a COO
• To generate economies of scale

Which benefits do you anticipate? It’s a good idea to write your goals down now. You will want to refer to them as you continue your exploration.

3. Hunt for More than One Worthwhile Partner

Once you decide that a merger is a worthwhile idea, your next step is to find worthwhile merger partners. Yes, this is intentionally plural. Identifying more than one potential candidate will expand your thinking about mergers. It will make you less needy and prone to compromise your musts during any negotiations, and it will enhance your comfort about stepping away from the table if negotiations falter.

How to Identify Nonprofit Merger Partners:

Experience.

• You successfully worked with them already.  The work can be everything from the two executive directors frequently meeting for mutual support to joint programming, training, or administrative activities. Two local groups, which merged last year, worked together for several years to acquire, improve, and manage their respective properties.

Proof.

• You uncover evidence that they work well with others. Your verification can include stories from their website, press releases, or even professional acquaintances who report successful endeavors. Working well with others is a skill that organizations grow. Like mergers, joint efforts stand a higher chance of success if each partner has honed their working-with-others skills.

Mission Proximity.

• Their mission is the same, similar, or complementary to yours. Mission links are easy to test. What does their mission statement say? Over the last decade or so, to become a regional organization, Big Brothers and Big Sisters of the Suncoast undertook five mergers with different local Bigs. All of the partners started with a similar mission statement.

Value Alignment.

• Value alignment means that their philosophies, especially about the nonprofit’s work, fall in line with yours. Matching beliefs are much harder to discern than similar mission statements. Outsiders and even stakeholders not familiar with the details of each organization’s philosophy often fail to perceive any differences — and the passions associated with them. In a merger, both groups must create a joint working philosophy that satisfies both partners’ core values.

One way to get to this is to ask about their theory of change. Does it match yours? (How do people change? How are people helped? What is the role of a nonprofit organization in this process? What kind of help is needed? What support is best?) For instance, as a counseling service, you believe that people teach each other and that group interaction generates outcomes. A potential merger partner feels that people need an expert guide and that the results they achieve now are because of their staff’s expertise. Creating a successful merged organization will involve designing services that reflect both approaches.  Next to trust issues and financial concerns, a lack of value alignment causes lots of awful mergers.

Fulfill Commitments.

• Successful partners follow through on commitments. A group may be the best organization globally, with a great mission statement and brilliant philosophies. Still, if they are so frazzled they can’t remember a meeting you agreed upon two weeks in advance and sent a reminder about yesterday, it doesn’t bode well for a positive and smooth merger experience. Follow-through is a practical consideration. What is it like to work with them?

4. Outline the Benefits for Them

Part of exploring mergers involves seeing and helping your potential merger partner to see positive outcomes from merging.  Here once again, write the specific benefits your prospective partner stands to gain. Review the list in Step 2. Take time to write a customized record of benefits from their perspective. No one wants to dance if all they see is work and loss. Guiding any prospect to “get” the value will open doors and help you both to see even more value in working together.

As you talk about how you might work together, share your list and update it. Identifying gains and getting excited about how others will win, plus pointing them out as they happen, will increase your merger process’s stickiness and success.

5. Grow Your Trust Skills

With the framework of benefits in mind, learn about mergers, common challenges, success, timeliness, trust, and change management. Learn what mergers entail to establish realistic expectations. These are not done-in-a-day projects. Yes, there will be a lot of paperwork. Remember that the paperwork is a formality.

In mergers or any significant joining, “The soft side is the hard side.” That is, mergers involve substantial emotional content, and how people feel and what they believe about working with you will rule the day. Expect supporters to raise questions such as, “Is my organization going to be taken care of in the merger?” “Will the values we hold dear be honored?” “Will my staff and volunteers recognize this as an enhancement of the way we achieve our mission?” “Are we safe?” “Am I safe?”

As you consider ways to increase your organization’s resources, consider the merger option by taking these initial steps. If you decide to pursue a merger, remember that “All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.” (Martin Luther King, Jr.). Merging with another nonprofit organization demands this excellence.

Looking for additional resources?

Read How to Evaluate Your Nonprofit Partnerships: A Tool

Nonprofit Merger Checklist: The Ten Steps

Karen’s Ten Concepts On How to Save Nonprofit Programs

For more answers, check out this Nonprofit  CEO Library.

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If you want to know even more about mergers, please don’t hesitate to reach out. I’d love to help you create a dynamic future. Schedule a time for a free discovery chat here.-Karen