In a recent posting, I noted that consolidation was a path for Not for Profit organizations to respond to changes in our operational environment. I received a number of questions on the pros and cons of nonprofit mergers. Folks share horror stories about failed mergers because, when these efforts go bad, they usually go very bad. However, when mergers go right, they can transform the organizations involved and supercharge their mission fulfillment capacity. This posting presents factors that can contribute to a successful NFP merger.
Select the Right Merger Partner
Aligned or Complementary Missions
There are plenty of reasons to consider a merger. One good reason is to increase capacity for delivering the mission. An example is regional consolidations, where NFPs with very similar missions combine to broaden their service areas, share resources and protect the organization from local impacts.
Another good reason is to add capabilities, such as additional types of services that fall within mission. If your organization provides training or education on certain subjects, another NFP that is providing complementary training may be a good merger partner*.
*Note: In the for-profit world, the entity you are looking at merging with is typically referred to as “the target.” This can set the expectation that one organization is taking over which is commonly the case. In NFP mergers, sensitivities to stakeholders often requires a more cooperative approach, so the term ‘partner’ seems appropriate.
One more troublesome reason for a merger is to significantly expand or alter your organization’s core mission. The further away from your core expertise, the more likely the merger will be unsuccessful. Mergers are tough and even more so if you must struggle to manage completely unfamiliar programs, funders and stakeholders.
Before you make a merger decision, be sure that you have a good understanding of the merger partner’s culture. Also, you need to understand your own organization’s culture. Cultural misalignment in a merger raises the risk of failure. Combining two widely different cultures can lead to misunderstandings, mistrust and resource flight. All of which can spell doom for any merger project.
Culture exists at all levels, so gauge it beyond the Board or leadership level. Take the time to get to know the merger partner’s way of doing things. Are they more casual than your organization? Do they have a significantly different organizational structure?
While no two cultures are exactly alike, mergers between organizations with similar cultures will tend to be easier and more likely to succeed.
Lead the Integration
In many mergers, the initiator, larger or healthier organization tends to be the driver. This creates a bias toward changing the policies, practices and processes of the merger partner to align with the driver. The assumption here is that the driver must have the best practices. Unfortunately, that is usually wrong.
Often, the smaller party in a merger will have excellent business practices which may have led them to be noticed by the merger partner. What an incredible waste it would be to throw out the very qualities that made the merger desirable. This happens far more often than it should.
Before changing anything, take the time to assess the policies, practices and processes of both organizations. Do this as a cross-organizational team with equal numbers of members from both NFPs. Leaders should encourage this team to identify the very best practices from each partner, as well as, any practices that are not great at either. Retain the best, across the new organization and lose the rest.
Once the merger is signed, the new leadership team needs to communicate the ‘hows’ and ‘whys’ of the transaction. It is important to bring both teams up to speed and to set expectations about how things will work going forward.
During the integration process, leaders will need to have regular communications with staff to discuss progress, issues and other pertinent information. This is not the time for leader to go radio silent. Once again, mergers are tough and they are often tough on everybody. Staff members will start to worry as soon as they stop getting updates about what is happening. When staff worry, focus is lost and the mission can suffer.
Mergers will be much more likely to fail if there is not a comprehensive integration plan in place prior to the transaction. The integration plan set out all of the step necessary to join the two organizations together into one working unit.
Collaboration is critical. Develop a successful integration plan by building a cross-organization team and guide that team through a thoughtful assessment of the steps necessary for integration. This process should start as early as possible before the transaction occurs.
Once the plan is in place, make executing the plan everyone’s responsibility. Assign leaders of both organizations accountability for the execution of the plan. Communicate the steps in the plan to all stakeholders. In short, everyone should know what it is going on and should know the role they are expected to perform.
Combining two organizations while continuing to operate both is a significant undertaking. To improve the chances of success, identify any resource gaps for the integration effort. You may need to outsource some of these gaps, including; project management, process integration, staffing optimization and risk assessment.
Mergers are tough, but they can transform two organizations into one that is more than the sum of its parts. Leaders must be thoughtful about the decisions before and after the transaction to gain every benefit possible from joining the organizations and staffs. Consider the merger a partnership, with all participants bringing valuable capabilities to the table.
For additional information on NFP merger considerations, check out this NY Times article
Have you experienced a NFP merger first hand? Please share your NFP merger experiences in the comments section. Thanks! –mike
For more NFP topics, check out the Not for Profit Leadership Blog: Not for Profit Beyond the Numbers
If you have questions or would like a consultation on a NFP issue, contact me at: firstname.lastname@example.org
For more about the author, follow this link: Michael F. Cade