Non-profit mergers aren’t the “easy way out”

At the end of 2011, I wrote a series of blog posts focused on predictions for the upcoming year. It seems as if my post on December 28, 2011 titled “2012 Non-Profit Trends and Predictions: Contraction Continues” hit a nerve with some of you. There isn’t a week that goes by without someone engaging me in a discussion around collaboration, strategic alliance, merger, acquisition, and outright sale.

None of this surprises me for all of the reasons I wrote about back on December 28th. However, the thing that is a little interesting has been the manner in which people are talking about the subject. At least in my conversations, this subject has been framed as the “perfect solution to get out from underneath our financial problems“.

While it is true that most non-profit mergers and acquisitions are inspired and motivated by financial crisis, it is important to remember that there isn’t a large group of non-profits sitting on the sidelines with a large wallet of cash just waiting to bail you out.  Let’s please get real for a moment.

  • There needs to be “benefit” on both sides of the merger equation. Figuring out what motivates each party is important, and it is one of the first steps.
  • Mergers don’t happen overnight. A due diligence process must be established with representation from all sides. This process will include discussions ranging from developing a case for change to addressing how to integrate systems (e.g. payroll, tech, etc) if the project gets green-lighted.
  • While discretion and confidentiality are important elements in such delicate discussions, there needs to be clear lines of communication with staff and both boards.

Engineering a merger is tough and takes a lot of time. It is NOT a quick fix nor is it the perfect solution from getting out from underneath your agency’s problems. The math supports this position. The Bridgespan Group published a paper presenting data and findings from a study that focused on non-profit mergers, and this is what they reported on the rate of success:

“We evaluated 11 years of merger filings in four states: Massachusetts, Florida, Arizona and North Carolina, and found that more than 3,300 organizations reported engaging in at least one merger or acquisition between 1996 and 2006, for a cumulative merger rate of 1.5 percent (number of deals divided by average number of organizations for 11 years).”

Does this mean non-profits aren’t as good at mergers and acquisitions as our for-profit cousins? Nope!

“This rate may seem low compared to the perceived ubiquity of M&A in the for-profit world, but it is not. The comparative cumulative total in the for-profit sector is a close 1.7 percent.”

If your non-profit organization is starting to chatter about collaborations, strategic alliances, mergers or acquisitions, I strongly suggest you: 1)  do your homework, 2) develop a process, 3) hire a consultant to help and facilitate, and 4) prepare for a long due diligence process.

I really like this online white paper by CCF National Resource Center that I found on the United Way of the Midlands’ website. Click here to read more about non-profit merger best practices.

Have you ever been part of a non-profit merger process? If so, what was your experience? Is your agency currently looking for a merger partner? If so, why and how are you going about it? Have you seen other merger attempts in your community succeed or fail? If so, what happened and why? How do you think donors should be included in a non-profit merger due diligence process without causing a crisis of confidence with lasting impact?

Please use the comment box below to weigh-in with your thoughts and opinions. Why? Because we can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847