Mergers in the NFP World

Mergers in the NFP World

By:  Mark Koscinski and Susan Hornak

Business combinations often cause a big splash.   They are reported on television and in the press. A merger of two small not-for-profit (“NFP”) organizations will never reach such glorious heights of journalistic coverage.   There are no easily accessible statistics on this subject, but anecdotal evidence indicates mergers of NFP organizations are relatively rare compared to business mergers.  Nevertheless, opportunities are out there.

Over  the last two years our  organization had at least two opportunities to combine with another NFP.  For various reasons these mergers did not work out.  Analyzing the circumstances around the potential combinations and why they never came to be  can be instructive.

The first opportunity was the direct result of complimentary mission, territory, and proximity of both organizations.  Another small NFP was headquartered one story above us in our  building.  That small NFP,  which we will refer to as “Target” (not the retailer of course!) had a small number of employees (just as we did),  trouble finding adequate talent (just as we did) and struggled to find funding (just as we did.)  Target performed services for the public we did not, but these services fell within our organizational vision.

The first reason we considered this opportunity was  Target had difficulty securing executive management. It had gone through several interim executive directors in a short period.  Our executive director was strong enough to manage the additional workload and certainly had the time and “band-width.”  We had  “hired-up”  when we offered her the job, hoping opportunities like this would appear. An obvious advantage of any merger was the fixed cost of our executive director would have been split over two similarly-sized organizations at a substantial savings to both. Common functions such as payroll, accounting,  and IT also could have been easily consolidated. There were other intangible benefits as  well. The staff would  have opportunities to be cross-trained, adding to their skill set and job satisfaction.  A combined organization would have been financially stronger, better able to attract funding.

The second merger opportunity was to consolidate into our operations a new line of business one of our directors had become expert in.  This fee-for-service line was something we had previously become interested in going into, but we had a much slower start than our director in her business. This was of course due to the lack of financial resources and available talent.  We looked at a proposed merger  as a chance to jump into the service line quickly, avoiding the pain and expense the learning curve always brings.   As we write,  the director’s  organization now has about twice the case load (and twice the billing) as our organization.  The combination of our organizations would have produced a powerhouse in the fee-for-service field, ensuring sufficient cash flow for our organization.

Why did both mergers fail?

1. Lack of bandwidth of our board and management.  We are a small NFP, where there is not much time to spare for strategic thinking.  Management sometimes has all it can do to keep daily operations ongoing.  It was not committed to an acquisition because it could not see how it could accomplish the  acquisition.
2. Lack of articulation of the benefits of a merger.  At key times we could not articulate the benefits of such a merger to the satisfaction of management.   When preparing for something like this in the future, it is critical the person championing the merger be able to clearly define what its advantages are.  A clear answer to  “What’s In It for Me?” can go a long way to accomplishing  the merger.
3. Lack of perseverance by the deal champions.  At the end of the day, we judged it was not worth the effort to push this through management.  We respected management’s position.  Yet, sometimes it is worth the effort as a board member to respectfully push back on management.

Board members, remember your management team can often be stressed by the lack of resources in running the day to day operations of the organization. They need your help with strategic operations such as a merger.  Be prepared to explain its benefits, and ready to roll up your sleeves to help.  We are hoping more opportunities will come our way in the near future.