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When Two Become One: Shepherding Your Organization through Mergers, Acquisitions, and Restructuring


The wood paneled walls that surrounded me felt stifling compared to the floor-to-ceiling windows, with a view of the valley, which I was used to. However, since the acquisition of a non-profit downtown, I had to find a way to align the culture and expectations of our 2,500-member organization with those of this new group of 30 individuals.
 
Despite different styles and histories, the organizations' missions were aligned. But it was challenging to celebrate the new increased impact while so many concerns remained.Would people and donors change their focus to the other site? Would unrestricted funds suddenly be restricted to help the acquisition succeed, but potentially leave other needs unmet? To make it work, key stakeholders had to be involved. But what would these stakeholders do once the acquisition was complete? And how would our funders view the new configuration?
 
Thankfully, we weren't alone in facing these challenges. Non-profit organizations are facing challenges that they can't meet on their own, but are finding solutions through mergers and acquisitions.

The Need for Change
 
Nonprofit mergers and acquisitions are capacity driven. The most recent study from the National Center for Charitable Statistics shows a 16% failure rate of nonprofits between 2000 and 2005. However, according to a 2014 report in the Nonprofit Quarterly, small organizations have a significantly higher risk of failing within five years: 57% of nonprofits that started in 2005 failed by 2010.
 
To keep pursuing their mission, organizations must fortify their strengths and address their weaknesses. For example, when an accountant it too expensive to hire, the organization can create a back-office collaboration. If two organizations serve the same mission, a merger could allow them to reduce overhead costs. These two organizations need to build a bridge to unite, without unthinkingly losing the strengths of either.
 
Foundations are also aware of the necessity of this type of merger. Foundations want to engage in "collective impact" giving. The government, nonprofits, and businesses need to work together on complex social problems. This is not an isolated opinion. The Bridgespan Group found that 55% of funders want to see more mergers, and 76% want to see more shared support (or “back office”) functions.
 
Having a good reason for a merger or acquisition is the right start, but how does an organization successfully bridge the transition?
 
A Lesson from California
 
A collaboration of ten foundations is leading the conversation around nonprofit sustainability in California. The Nonprofit Sustainability Initiative has identified five key learnings that they are sharing with non-profit organizations and foundations on a national scale.
 
1.      We need to change the narrative around “strategic restructuring” and “merger.”
2.      Funders can play a fundamental role in opening the door to restructuring opportunities.
3.      A neutral third-party facilitator is essential to the process.
4.      Funders should be flexible and manage uncertainty.
5.      Funders also benefit from collaboration.
 
For nonprofits, these learnings can help drive an intentional transition process that takes into account the long-term impact of the change, available funding, and the impact on programs and services. The full description of the initiative is worth the read. Following are some takeaways for each phase of the process:
 
(1) Evaluate the opportunity. How will the change meet the needs of the organization(s)? What type of change best fits (i.e. merger, acquisition, partnership)? Who will be involved, and what will their roles be? Will an outside consultant help facilitate negotiations? How will this affect your organizations' standing in the community you serve and in the philanthropic community?
 
(2) Secure funding. Are grants available for feasibility studies or implementation? Which organization will be the lead on the grant application? Will current or potential funders be disqualified because your budget size, focus, geographic location, or other elements change? Are your current funders aware of the intended change? What will this mean for (1) current grants, (2) grants that are in review, and (3) grants that are in your plan?
 
(3) Develop the program. How will the finances flow? Will drastic changes in the budget be easily explained? Is a 6-month budget necessary to align one organization's fiscal year with the new organization's fiscal year? How will you cover one-time costs associated with the merger? How, who, and when will the announcement be made? What is your “exit strategy” if things don't go according to plan?
 
Even though acquisitions can be challenging. The initial excitement often dwindles as the realities of change set in. However, by keeping the mission in mind, like-minded organizations can see their impact multiplied once they become one.

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