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Merger Secrets to Success

New research identifies some of the factors that make nonprofit mergers work.

A new report called “Success Factors in Nonprofit Mergers” was published last month by MAP for Nonprofits, a capacity building organization for nonprofits based in Minneapolis, MN.  The multi-year study completed by Wilder Research identifies what factors lead to successful nonprofit mergers, and analyzes what happens after a merger is implemented. The study examined 41 mergers between January 1999 and June 2010, and included interviews with 201 individuals—three to eight people per merger, including at least one executive director, board member, and representative from the dissolved nonprofit. It also looked at financial data obtained from publicly available 990 tax returns and accessed through Guidestar.

The researchers were able to identify a variety of success indicators for a merger in areas such as outcomes, reasons for merging, merging process, and financial analysis. The study was launched at a very informative conference in Minneapolis last month called New Structures for New Times, underwritten by the Greater Twin Cities United Way, which has played a significant role in local strategic restructuring efforts. Here are just a few of the interesting highlights:

  • Ninety-five percent of respondents believed that the merger would not have happened if one of the executive directors had not driven it. Also, in 80 percent of the mergers, the executive director of one of the pre-merger organizations had recently left or was soon to retire.
  • When the board of each pre-merger organization was very involved in the merger process, respondents were more likely to report that the merged entity had a positive image, reputation, or public support three years following the merger.
  • Mergers may work best when the nonprofits have a history of partnering together and openness, and when there is transparency in both legal and financial matters.
  • Merger success is associated with how well non-administrative staff members are informed about the progress of the merger and the involvement of non-administrative staff members in the planning and implementation of the merger.

The study supports many best practices for facilitating a merger well. It also confirms that organizations feel they should use consultants; 96 percent of respondents said they would involve a consultant in future mergers.

There is much more information in the study than I’ve shared here, and I encourage you to either read the full study or the shorter synopsis, particularly if you are considering doing a merger yourself. I am grateful to MAP for Nonprofits, Wilder Research, the Greater Twin Cities United Way, and their partners for making this research possible and for sharing it with the entire nonprofit sector. I also wish to acknowledge my good friend and mentor, Ron Reed, who was integral to making the study possible. Ron helped launch Project Re-Design, the mergers and collaborations practice at MAP for Nonprofits, and co-wrote “MergeMinnesota,” a merger how-to manual that is available for free on-line, a really great resource.

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COMMENTS

  • BY Michael L Wyland

    ON August 20, 2012 10:57 AM

    My consulting firm facilitated the merger of six chapters of a national nonprofit into a single entity.  I remember meeting with an attorney retained by the national organization to assist in the merger process.

    He had worked on for-profit mergers before, but this was his first nonprofit merger.  He couldn’t understand the resistance he was getting from the various players (for-profit executives are usually eager to conclude a merger).  Although the national organization was making his firm’s considerable services available to the chapters, at least one chapter had retained “their own attorney” to assist - much to the consternation of the attorney I was meeting with.

    I explained two related things:

    1) this was a forced merger, and, as a result, the national organization was “the enemy” in the view of some of the key local players.  They didn’t trust the national to provide unbiased counsel.

    2)  in a for-profit merger, the executives and board members usually get significant payouts to complete a merger.  In a nonprofit merger, there are rarely any payouts.  Conversely, most key players *lose*.  In our case, all six CEOs lost their positions, and most of the six councils’ board members were not made board members of the new entity.  So, everyone at the table was losing a position they valued highly, and a few were losing significant salary, title, and authority.  Five of the six communities were losing status, as there could be only one headquarters location for the newly-merged chapter.  Why *wouldn’t* a board member or executive be loathe to celebrate and rush the calendar?

  • Jenifer Morgan (SSIR)'s avatar

    BY Jenifer Morgan (SSIR)

    ON September 4, 2012 11:20 AM

    Posted on Behalf of Jean Butzen:

    Michael,
    This is a good comment for two reasons. First, it highlights the differences between for-profit and non-profit mergers, which are significant. It’s good to remind people of that. Second, most nonprofit mergers are not forced. Forcing mergers on people is bad for the staff and board members and rarely ends well. Most merger consultants will tell you, even in the case of a national organization, that it’s important to bring all of the leaders to the table and to collectively make the case for a merger, and then plan together how the merger will be done. The first choice is to offer executives new positions with reduced responsibilities. When it is impossible to avoid lay-offs, and every effort has been made to do so, then usually there is an effort to create a “soft landing” for departing executives in the form of severance.  The boards are most often consolidated at least through minimal representation. It is sad to hear of anyone being treated in a disrespectful way in a merger, staff or board members. But also, it creates a very difficult situation for the resulting consolidated entity that is left to deal with the aftermath of such an experience.

    Jean

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