A merger of two or more nonprofit organizations with good mission alignment can result in greater community benefit. But it can be difficult to navigate the process, even if you have identified an appropriate potential partner. Here is an overview of the steps in a merger process:
Preparation – The preparation phase includes organizational self-assessment. Honestly, what are your organization’s strengths and challenges? What complimentary strengths would you be looking for in a merger partner? Whether or not you end up merging, you should seek to improve your organizational health so that you enter merger negotiations from a position of financial and organizational strength. And if you haven’t pre-identified a logical potential merger partner, you’ll need to use the criteria you develop to choose one or more organizations to open a dialogue with.
Exploration – Once you have an identified partner and there is mutual interest in exploring possibilities for partnership and/or merger, you begin to share information. At this point, the boards should endorse the exploration process and establish a joint committee with representatives from both boards, joined by the executive directors from both agencies. The due diligence process includes sharing program, staffing, financial, fund development, facilities and other organizational information. Typically, the organizations will solicit input from key stakeholders as well. Relationship and trust building are also a crucial part of this phase of the process. A consultant can facilitate and ensure good process, and may sometimes complete a “merger viability study” in which relevant issues are outlined for the leadership at both organizations. At the end of the exploration phase, the merger exploration committee will make a recommendation for or against pursuing a merger. If the recommendation is positive, both boards should vote on whether to sign an “intent to merge” letter, stating their commitment to merging if legal, financial and other key issues can be resolved satisfactorily.
Negotiation – The joint committee will typically continue to work together to negotiate the terms to be contained in the merger agreement, as well as determining (with legal counsel) the best way to merge the two entities legally. A healthy merger process will resolve key issues at this stage so that it is clear who the staff leadership will be, what the surviving or new name and brand will be, and whether there will be changes in program offerings as a result of the merger. The result of this phase is a legal document, the merger agreement.
Approval and Announcement – Both boards must vote to approve the merger agreement. The actual legal merger date will be set at some future date. Once both boards have approved the merger, the agencies should work together to should implement a thoughtful communications plan to inform key supporters and partners. The announcement should include the rationale and a vision for how the combined organization will have increased community impact.
Merger Implementation – Once the merger is approved, the work of implementation begins. Implementation includes merging systems for financial and data management, disposing of duplicated equipment (if you are co-locating, one of the copy machines can probably go), moving in together (if indicated), determining the staffing structure, and developing integrated policies. However, cultural integration and attending to staff and board morale is also critical to a merger’s success. Completion of merger implementation typically takes a year.
The Role of a Merger Facilitator – A merger facilitation consultant can be very helpful. In the exploration phase, the consultant can guide the due diligence process and also provide confidential assistance. For example, a consultant can compare funder and donor lists to determine the amount of overlap, without disclosing donor names to the other organization. Throughout the process, the consultant can facilitate difficult conversations, raise issues or questions to ensure the deliberations are thorough, and document decisions that will form the basis for the merger agreement. The merger agreement is typically drafted by an attorney with nonprofit expertise.
The cost of a merger facilitator is usually shared by the two organizations, and may be covered by a special grant from a funder that wants to support nonprofit consolidation when it makes sense. Even if a merger exploration process does not result in a merger, it may have other positive outcomes. The organizations may identify other ways to partner and each organization will come away with a clearer, more complete picture of agency health and community reputation.
According to the latest research on nonprofit mergers (see Why Nonprofit Mergers Continue to Lag), the three “emotional traps” that often foil merger discussions are failure to inform and engage the boards sufficiently, difficulty determining a plan to integrate senior staff, and challenges around “brand stewardship.” There is a great deal of emotion and fear in response to “the M word”—strong leadership is required to fully explore the potential benefits and determine if merger will be beneficial to the community served by your organization. Throughout the process, keep your mission at the forefront to ensure a good outcome and avoid personal interests overriding the public interest at stake.