The Unrealized Potential of Nonprofit Mergers and Collaborations:

A nonprofit doesn’t need to be in “crisis mode” to consider the benefits of a collaboration or merger. Sometimes, the best way to achieve your mission is to join forces with another organization to capitalize on substantial grants or contracts, which the organization may be unable to fulfill alone. This issue of Nonprofit Advisor explores what it means to merge or collaborate in the nonprofit environment and provides key details to consider that will help you establish and maintain a successful partnership.

Why nonprofits merge. Recent nonprofit studies demonstrate several reasons why nonprofits consider merging:

• Lack of funds. Mergers can transform two organizations into one that is more than the sum of its parts. Financial instability may prompt a nonprofit to engage a larger, more financially stable organization.
• Leveling the playing field. When nonprofits have similar missions, they may be competing for the same donors. Merging with another organization that shares your mission and values can be a great way to expand donor engagement and might offer the potential for cost savings.
• Diminished leadership. When senior management resigns, or if trust is broken between the board and the Executive Director, a nonprofit may need to consider a merger to strengthen leadership.

Items to consider for a successful merger. There are several key issues to consider before moving forward with a merger:

• Aligned or complementary missions. When you share a similar vision with another organization, it can increase your capacity to deliver your mission. Complementary missions can provide additional services to an existing population. Be sure to avoid significantly expanding or altering your core mission. Mergers can be challenging, and trying to manage unfamiliar programs, funders and stakeholders can be overwhelming.
• Similar cultures. Spend time understanding how your culture compares with that of which you intend to merge. Combining two different cultures can lead to misunderstandings, mistrust and resource flight.
• Combining skill sets. When two organizations come together, management and the board of directors need to think of how to effectively and efficiently employ the talent pool. Perhaps one organization brings to the table a team that excels in fundraising, while the other has a team with superior programming.

When it’s time to put the wheels in motion. Leverage best practices to ensure a seamless integration: 

• Policy review. Often, the merger initiator is the larger organization. This can create bias toward changing policies, practices and processes of the merger partner to align with the larger organization. Don’t assume this entity has the best practices in place to ensure a successful merger. Smaller organizations can have solid practices in place, so it is important to examine policies from both sides. You should consider engaging the services of an outside service provider, such as an accountant, to take an unbiased look. The goal is to keep the good and make a fresh start with the not so good.
• Communication is key. Lay the groundwork for a trustworthy foundation. During the integration, leaders must set expectations and maintain regular discussions on progress with staff. Another key communication issue is messaging to the general public. Mergers are often associated with leadership failure or financial distress. Be sure that management and the board of directors can clearly articulate the reasons for and benefits of the merger.

Important Steps for Your Integration Plan. Pre-planning is just as important, if not more, than the execution phase. The following should be kept in mind when merging two organizations:

• Working together is critical. Build a cross-organization team.
• The process should start as early as possible before the transaction occurs.
• Assign leaders of both organizations accountable for the execution of the plan.
• Be prepared to ask for help during this significant undertaking, and consider outsourced resources to help with project management, process integration, staffing optimization and risk assessments.

Collaborations as a means of growth. Recent years have shown a rise in nonprofits partnering with other nonprofits or with for-profit organizations to deliver their mission. Collaborations can take many forms such as associations, coalitions, joint programming, or shared services. A particular strategy we have observed is for two organizations to join together to apply for significant funding and then to jointly provide the services required. When beginning this process, organizations should look strategically for a partner with shared goals. Management and the board will need to consider the practical aspects of collaborating, conduct due diligence on the partnering organization and work collaboratively to define success and articulate the shared goals.

Key takeaways and next steps. Mergers do not reflect failure on the part of leadership or at the financial level. Once you debunk this myth, it becomes apparent that consolidation is a way to build an organization, broaden its scope, bring in new resources and take advantage of cost savings. If your nonprofit is ready to take the first step in examining a potential merger, contact your Friedman expert.