The past year has been hard on everyone, including many of the nonprofit organizations we work for and support. While resources flowed to many nonprofits that were meeting basic needs during the COVID-19 pandemic, that was not the case for nonprofits that seemed less essential in the moment or lacked the partnerships, visibility, or fundraising experience to attract the resources or funds being distributed during this period.
If you are a board or staff leader, you may be wondering if your organization would be better positioned to work in partnership with another nonprofit. This would be a big step but could yield significant benefits. During a webinar I joined last month, the group discussed two distinctly different approaches to merging — a survival merger and an aspirational merger.
Take a closer look at these merger types if this option is being discussed with your team:
Survival Merger
If you are running out of resources (money, energy, staff talent, reputation), you may need a partner who can serve your clients/patrons and hire some or most of your staff. Under this merger, your timeframe is limited. You can expect a sense of anxiety during the process because you won’t be able to work out every detail and the merging organization will hand over most control and decisions to the surviving organization — hopefully to the long-term benefit of the mission. This type of merger is most likely to happen between organizations that already have been working together or in the case of one organization having an ongoing revenue stream that the surviving organization can access to take on their services.
Aspirational Merger
If your organization is full of energy and ideas and successfully funding your work, you may want to find a partner that will help amplify your impact to serve more people or serve people in new ways. Alternatively, your sector may be heavily dependent on a funding source that is directing service providers toward scale. A third scenario for an aspirational merger is that you recognize a need for new or stronger leadership and want to merge with an organization with a strong leadership team that complements yours. Discussions leading up to this type of merger will more likely take place over a longer period of time with both partners expecting to have significant input and sharing decision-making authority.
Nonprofit merger myths
Unfortunately, many nonprofit leaders have misconceptions about the benefits, potential and challenges of mergers. Here are a few:
We will save big $$: Over time, it is likely there will be some savings as certain operational efficiencies are realized. However, there can be significant upfront expenses to combine operations and systems or to create and launch a new brand. Merging often means hiring more skilled staff in certain areas. Aligning compensation and benefits across two organizations usually increases costs.
A merger will lead to massive layoffs: Since most nonprofits are in the service sector, they need their people to serve their clients. Most nonprofits are already stretched thin; duplication is most likely to happen in administrative or mid-level program roles.
We need to ensure confidentiality: While confidentiality around discussions of a merger can be very important in the beginning of the process, it will be hard to maintain over an extended period of time. For an aspirational merger, as you move from preliminary evaluation to “how-to” conversations, you will need more staff members, and potentially many stakeholders, to be part of the conversation.
We will lose our identity: Joining another organization does not mean your name and identity will disappear. Under merger agreements, there can be many options to maintain brands and programs.
We must put legal structure first: Don’t let corporate structure conversations lead your discussion. First, decide what you are trying to accomplish and then seek legal counsel about the best way to make that happen. In most basic mergers, one organization will disappear as its assets and operations are joined with the other organization.
Keep in mind that aspirational nonprofit mergers are most often driven by mission and people issues with financial aspects coming in as secondary — quite different from those of for-profit mergers. Reference my February 2021 article on a shorthand approach, MAKER, to evaluating your match with a partner.
To learn more please contact Bryan Orander at Bryan@charitableadvisors.com or 317-752-7153.
