Choosing to Merge

Mergers are radical restructuring methods. They involve two or more organizations that have decided to reassess their future and redo it together in a formalized manner.

Merging two or more organizations has a major impact on the boards, staff, funders, customers, and the rest of the constituents. The newly formed nonprofit may look very different from the original entities or may simply become a more expanded or enhanced version that is able to function more efficiently or reach more people. Before deciding to merge, each participant must go through thorough self-analysis and be convinced that this is the right solution for its restructuring needs.

 

Why organizations decide to merge

Most organizations decide to consider a merger because of a necessity rather than an unexpected opportunity. Economic reasons may force an organization to improve its financial basis. It can be easier to boost economies of scale and eliminate inefficiency with a structured team effort. By streamlining and sharing resources it may be possible to cut administrative and program costs. A merger can allow an organization to take on new projects or get involved in larger-scale endeavors. Finding a financially solid partner may allow an organization to avoid bankruptcy or dissolution. Funders may find the new strengthened organization more attractive and less risky to support. Large-scale contracts may become acceptable. Strategically, a merger may increase two organizations’ reach and allow them to accomplish more with a unified front. By combining complementing strengths, two organizations can manage to create an entity that is more powerful than the original parts. A merger can eliminate confusion between two similar organizations. By combining efforts, these similar organizations can increase their political power, lobbying impact, and improve the conditions for their members.

Other options

A merger brings about a major organizational change. It is not the solution for every organization in need of restructuring. Other options should be evaluated thoroughly during the investigation phase. These include

  • collaborations and strategic alliances — It is possible to work closely or contract with other organizations without losing organizational identity.
  • spin-offs and splits — Forming supporting organizations and for-profit subsidiaries provide collaboration without major financial burdens.
  • informal networking — Sharing information and references with other organizations leverages resources.
  • scaling down — Cutting down unproductive programs and focusing on competitive advantage can strengthen the organization’s leadership role.
  • modernization — Catching up with latest resources and innovations can turn an outdated service, program, or an entire organization into a viable economic power.
  • leadership change — To turn an organization around or to invigorate a sluggish state of affairs can be achieved by changing leaders — board or staff.

When not to consider a merger

Under many circumstances a merger is not the right choice for an organization. Some examples include

  • all other options have not been discussed and evaluated
  • the board has not reached a consensus on the objectives for changing the present condition and has not agreed on the final expectations for the organization
  • the board has not done its homework and is simply trying to precipitate the decision by considering a merger to solve an immediate crisis rather than focusing on its long-term effects
  • the public, constituents, or major funders strongly — and justifiably — oppose the move
  • there is no suitable partner available at the present time
  • the organization is unwilling to lose its autonomy

Who makes the decision to merge

Even if the board makes the final decision to consider and to seal a merger, this decision should never be made in isolation. Too much is at stake. The board discusses the issue with the chief executive with senior staff input. The staff may even bring up the issue of a merger for the board to consider. Funders and key constituents should be consulted. After having evaluated all the options and come to a conclusion to move ahead with a merger, the board votes on the issue. Usually this type of major structural changes requires more than a majority vote. The bylaws may state that a two-thirds or a three-fourths vote is needed. In a membership organization the members usually need to approve the board’s decision.

 

201 Resource | Last updated: June 21, 2016