Keys To A Successful Nonprofit Merger
Sustainable Unions Between Entities Require Specific Influences
Twenty percent of the 117 executive directors surveyed by the Bridgespan Group have indicated that a merger might be the strategy they use to survive tough economic times.Mergers are business strategies more commonly pursued in the for-profit world of business than in the not for profit sector. What factors might make a merger of two nonprofit entities more compelling and what influences would create a successful merger?
Different Forms of Affiliation
Mergers, which are the discontinuation of one entity and its absorption by another, are only one form of organizational alignment. There are other options, including:
- Consolidations- two independent organizations come together to create a totally new entity.
- Coalitions- agencies come together to achieve a single purpose such as a coalition to provide housing for the homeless.
- Contractual arrangements- one nonprofit agrees to purchase services from another entity in order to achieve a specific goal.
Each form of affiliation has its own pros and cons and the selection of a particular alliance depends on the situation facing that particular organization.
Conditions That May Necessitate a Merger Between Nonprofits
There are a few key factors that drive that decision. These include:
- Diminished financial status – an agency may have suffered significant financial losses and not have the necessary resources to continue. In this case, the agency may seek out another organization with a similar mission and focus that can keep its services going.
- Compromised leadership –the CEO may be in legal trouble and the board cannot agree on a successor or is dysfunctional enough that it cannot identify leadership to carry the organization forward. In this instance, the board may opt to dissolve the organization and allow another likeminded entity to absorb it.
- Acknowledgement that future sustainability may not be possible unless the organization merges with another entity- for example, Agency A provides inpatient substance abuse treatment and receives 80% of its reimbursement from the government. The government in a cost cutting move decides to phase our reimbursement for inpatient treatment. Agency A may decide that its future sustainability has been compromised and seek out another entity to align with.
Key Success Factors
A successful merger is contingent upon the following elements:
- Compatible mission, vision and values – the more closely aligned the two organization’s mission, vision and values are the more likely they are work in concert.
- Board member compatibility – usually some of the board members of the organization being dissolved will be placed on the board of the surviving entity. This preserves something of the old order going forward. How the two groups work together as they explore the potential collaboration and work out the early details provides an indication as to how they will get along later.
- One CEO emerges to lead without conflict – mergers are easier when one of the CEOs takes themselves out of consideration (e.g. announces their intention to retire) for the job of the CEO of the merged entity.
- Preservation of staff jobs – bringing staff members together is often easier if everyone understands that jobs are not in jeopardy. This is not always possible particularly if the financial resources are severely limited.
Mergers are one form of organizational alliance. Compatible mission, vision and values as well as agreeable board members and staff will do much to ensure a successful merger.
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