As you’ve probably heard, Greenlights underwent an exciting merger with Innovation+. We also continue to consult with organizations pursuing merger, and recently published a qualitative study of nonprofit mergers in Central Texas. Given all this, I was interested to read in, Why Nonprofit Mergers Continue to Lag, that despite new resources and funding for mergers, the actual merger rate continues to remain flat. While there is still much progress to be made, the authors did point to some encouraging news that nonprofits are beginning to see mergers and acquisitions as a proactive growth strategy, and not simply a “route out of financial distress”. One major sign: In a series of recent surveys with nonprofit executives, Bridgespan Group found that 20% of all nonprofits had considered merger as a part of their strategy.
We too think it makes a lot of sense for organizations to periodically consider if pursuing a merger or other form of collaborative partnership makes good strategic sense. In our own study of mergers in Central Texas, we found that growing services, enhancing effectiveness, and strengthening long term sustainability topped the list of reasons why nonprofit organizations had considered merging. And when do organizations often give extensive thought to these issues of impact and sustainability? During the strategic planning process.
Strategic planning is a critical time for organizations to take a fresh look at their strengths and weaknesses, as well as the opportunities and challenges that lie before them. Because of this, it is also an opportune time for boards and executive leadership to think about merger and other forms of strategic collaboration. Here are four key questions to get you started:
- What are the strategies we are trying to achieve? I know it sounds obvious, but it’s important to start with this question rather than, “Should we merge?” David LaPiana, an expert in nonprofit strategy, encourages organizations to think of merger and other forms of collaboration as strategic tools. Organizations should first develop a clear understanding of the strategies they are trying to achieve, and then consider if and how collaboration might make sense.
- Could our goals be better reached through a partnership with others? There are obviously many ways your organization can pursue its goals. It’s important to be realistic about the outcomes you are hoping to achieve. Do you seek to serve more people? Provide higher quality services? If so, merger might make sense- although only after extensive due diligence. Is your organization primarily looking to deal with a financial crisis? While merger might be a possibility, it may make more sense for a struggling organization to cease operations or consider a transfer of assets, rather than pursue an outright merger.
- What internal and external factors do we need to consider? Are there factors in the external environment, for example increased competition for human and financial resources that should be examined? What about major changes within the organization, such as the departure of the ED? In our study, six of the organizations we interviewed were experiencing an executive transition at the time the merger was considered. While only one nonprofit leader indicated the leadership vacuum was the primary reason for merging, several other organizations viewed the transition as a “trigger” to explore merger further.
- What options are out there?Although I’ve focusing a lot on mergers, there are many different types of strategic collaborations available including shared services, joint activities, etc. Spend time becoming familiar with all of the options that may make sense for your organization.
For more free tips, tools, and resources, including two decision trees from David LaPiana, check out our Nonprofit Mergers & Collaborations research.