Making Sense of Mergers

Judy Alnes, Contributor, executive director, MAP for Nonprofits
We’re done with the last minute scurrying to finish the nonprofit merger research which was unveiled yesterday July 31st. The research team has held its final meeting, designs have been poured over, fonts selected, paper purchased, edits made, and press checks completed. Now all that’s left to do is turn our attention back to the future. And what a huge future it is as nonprofit leaders explore strategies to keep their organizations successful.

When MAP and Wilder Research embarked on this research journey two years ago, we aimed to learn more about nonprofit mergers. Do they create more vital organizations? Can a merged nonprofit be more effective in securing resources? Can it stave off the pain of reductions in funding? Can it create a more revved up financial engine for preserving the services that we most need in our communities? Do nonprofit mergers hold any promise as a response to the tight economic times in which nonprofits find themselves?

Frankly, we didn’t know what we’d find. From our first-hand experience facilitating nonprofit realignments, we’ve delighted in the many times when we helped forge a new relationship between nonprofit organizations that we believed would succeed at preserving services and securing financial efficiencies. Indeed, we built our hypothesis around our experience: that nonprofit mergers – when well executed – can preserve needed community services and improve financial sustainability of organizations. And we further hypothesized that there are pre and post merger practices and processes that improve the likelihood that a merger can succeed. In short, we believed we’d uncover evidence pointing to how to merge well.

So what key points did we take away from our research?
We learned that most mergers are pursued for strategic or survival motives. Indeed, many mergers are a result of one organization’s strategic move and another’s survival motive. We learned that leadership is key to successful mergers. An executive “champion” was present in 85% of the mergers we explored. Further, it helps if the executives of the two organizations have strong working relationships prior to the merger exploration. Board leadership matters, too. Strong board involvement prior to a merger is a predictor of improved image or reputation following merger.

Financial results of the mergers we studied indicate that mergers hold promise for the longer term financial situation of the combined organization. However, in the short term, cash positions in the merged organizations decline. Funder involvement is a predictor of merger success. If funders are involved during a merger it is more likely services will be preserved and the organization will be financially stable.

Our research also touched on the subject of post-merger integration. Support and inclusion of non-administrative staff is a predictor of the ability of the merged organization to preserve and grow services. Indeed, involvement of work teams from every level in the organization appears to make a real difference in merger success.

So what hints does this research suggest for the future? To me, it is a call for action. Board and staff leaders of nonprofit organizations owe it to their missions and their community stakeholders to find out if there are more powerful ways to advance their missions using the resources at hand. A nonprofit merger or another form of realignment might just be the key to unlocking this potential. We need to put aside the mental barriers that limit our creative thinking about how we can best organize to do our work. We need to put aside the sacred cows, the treasured histories, and the “this is the way we’ve always done its.” To do less, is to squander the resources we have available to meet community needs and limit the potential for our collective future.

More on Nonprofit Mergers
Mergers and Realignments, by Renae Oswald-Anderson and Gordon Goodwin