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Choosing to Merge

Mergers are considered when boards and senior leaders, sometimes prompted by funders, realize they could be stronger together, during a time of executive transition or when they have financial or other challenges.

Before deciding to merge, each group must complete a thorough self-analysis and become convinced a merger is the right solution. Merging two or more organizations has a major impact on the boards, staff, funders, clients, and all other 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.

There are a variety of circumstances under which organizations may consider a merger. The three that are most common are when they can be better together, during an executive transition, or when faced with a pending crisis.

Better Together

Strategically, a merger may increase two organizations’ reach and allow them to accomplish more with a unified front. It may become obvious that another organization in the ecosystem is doing similar work. By combining complementing strengths, two organizations can create an entity that is more powerful than the original parts.

During An Executive Transition

An executive transition is an excellent time to consider a merger. The absence of someone who has spent their blood and tears to build an organization may remove some of the anguish to make the path forward less rocky. It is an opportunity to consider new options.

Financial or Programmatic Difficulties

Economic or programmatic reasons may force an organization to consider ways to improve its financial base or its programming; the solution to either situation may be a merger. Combining forces, streamlining, and sharing resources may make it possible to cut administrative and program costs while improving impact.

A merger can make it easier to boost economies of scale and eliminate inefficiency with a structured team effort. It 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 newly strengthened organization more attractive and less risky to support. Large-scale contracts may become accessible.

Other Options

A merger heralds significant 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 the latest resources and innovations can turn an outdated service, program, or 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

A merger may not be the right choice for an organization and isn’t usually the first option. This may be the case when:

  • 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?

The board makes the final decision to merge, yet this decision is rarely made in isolation. The genesis for the merger may not begin with the board. The community may have suggested a merger, either the funders, staff, program recipients or even the public at large. The board discusses the issue with the chief executive with senior staff input. After having evaluated all the options and a conclusion has been reached to move ahead with a merger, the next step is a search for a potential match followed by due diligence of the potential merger partner.

All merger discussions are not successful. Culture and values are often challenging as are issues of money, goals, and who will lead this new organization. Additional challenges come after the decision is made: Who will serve on the board of this newly formed entity, who will lead it and what will it be named?

The final decision has to be voted on by both boards. The bylaws will determine the process for the vote, majority, two-third or three fourth affirmation.  In a membership organization, the members may need to approve the board’s decision.

A merger can eliminate confusion between two similar organizations. By combining efforts, similar organizations can increase their political power, lobbying impact, and improve the conditions for their members.

 

 

201 Resource | Last updated: August 8, 2023