New Report Explores Success Factors in Nonprofit Mergers

An important new research study from MAP for Nonprofits and research partner Wilder Research is “the first to comprehensively look beyond the merger process to assess what happens after the merger, especially in the operations and functioning of merged organizations.” The research respondents include 41 organizations in Minnesota formed by mergers of two or more entities between January 1999 and June 2010. The report provides insights useful to nonprofit boards and management nationwide. Thanks to a collaborative event hosted by the Blandin Foundation, United Way of 1000 Lakes, and the Grand Rapids Area Community Foundation, I participated with other nonprofit leaders in a livestream presentation of the findings.

Many boards think of mergers as a last resort.  When the situation is so dire that collapse is imminent, a weary voice suggests, “Maybe we can merge with somebody, at least to keep [inserts name of favorite program here] going.” Unfortunately, then is probably too late. If an organization is unable to bring anything to the table but debt and disaster, it is not likely to find a viable merger partner. Among the organizations in this report, only 12% had trouble making payroll prior to merger. The best time to consider merging with another nonprofit is when both of your are in a position of strength.  Rather than a last resort, merger can be a strategic move to enhance both delivery of services and long-term financial position.

A few of the many other findings of interest to boards:

Merger Motivations

  • 93% of respondents report pursuing merger in order to improve services delivery
  • 93% also sought to improve long-term financial viability for at lease one of the merging organizations
  • 75% sought save existing services that would otherwise be lost
  • 61% intended to improve currently strong financials
  • The report suggests that the prime motivator for boards is the desire to improve the organization’s financial position
  • A departing CEO is not a reason to merge—but it is an opportunity

The Role of the Board in a Merger

  • 78% of the mergers had strong support from board members
  • In 61% of the mergers, a board member from at least one of the entities pushed for merger
  • 46% of the mergers identified a board member as a “champion” of the merger
  • When boards were “integrally involved” in the merger process, the new organization was more likely to report improved image, reputation, and public support

After the Merger

The strongest predictors of financial stability after a nonprofit merger are:

      • Strong pre-merger working relationships among the executives
      • Collaborations between the organizations prior to merger
      • Including support staff in the planning and implementation
      • Giving donors and other funders opportunities for input during planning

The strongest predictors of retaining or expanding services are:

      • Strong pre-merger working relationships among the executives
      • Good due diligence (for example, full financial disclosures)
      • Sharing the costs of the merger among combining entities
      • Including support staff in the planning and implementation
      • Giving donors and other funders opportunities for input during planning

If your board is considering merger in its strategic planning, this research will enhance your chances of success. If your board is not considering a merger, there is plenty of thought-provoking information. Either way, I encourage you to read the full report.

You may download it as a PDF file by clicking on the circle:  

10-minute Board Discussion

If our board were to merge with another organization, what would that make possible?
Images from the cover of Success Factors in Nonprofit Mergers report, courtesy of MAP for Nonprofits.

Disclosure of Material Connection: I have not received any compensation for writing this post. Although I serve on the board of directors of the Grand Rapids Area Community Foundation, I have no material connection to the brands, products, or services that I have mentioned. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

 

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