Group meeting in conference room talking about mergers

Mergers Up Close

As discussed last month, mergers and strategic restructurings can make a lot of sense if two organizations have similar missions and see opportunities to improve operations as well as program delivery by combining forces. In the past year, several of my past clients have been involved in mergers and strategic restructurings:

Having worked with these organizations in the past, I have some understanding of the strategic reasons why the nonprofit organizations chose to merge, but in the case of SMART Reading and The Children’s Book Bank, I was involved in the critical initial phases of the merger as the interim executive director at The Children’s Book Bank. I would like to provide some insight and lessons learned from that experience.

I began working at The Children’s Book Bank in the fall of 2021. Shortly after arriving, I discovered that the board of directors of SMART Reading and The Children’s Book Bank had begun formal discussions about merging a few months before my arrival at the organization. The informal discussions about how the organizations could work more closely with each other had been ongoing between the two executive directors for several years.

The departure of one of the executive directors provided an optimal situation in a merger situation. Hiring an interim executive director allowed for the discussions to continue in a thoughtful manner without a break in operations.

When I became involved in the process, the organizations were involved in a due diligence process. Each organization shared key documents with the organization including board minutes, financial statements, articles of incorporation, bylaws, organizational charts, etc. At this point in the process, the purpose of sharing information was to allow each organization a transparent view of the other organization. After all this information was gathered and teams from each organization had had a chance to review, several meetings transpired with representative board members from each organization and the executive directors participating. This process took place over the span of about four months

Once both organizations felt comfortable with the mission alignment, organizational cultures and finances, they entered into a formal letter of agreement to examine the possibility of merging. It was important to both organizations at this point to be clear that each organization was in the position to back out if they saw any reason why the merger would not be feasible.

Only after the letter of agreement was signed were the remaining staff of each organization informed of the discussions and brought into the process. As was anticipated, the first question asked was: “What does this mean for me?” Staff wanted to know if they were still going to have a job and would it be a job they wanted. Staffing had been discussed thoroughly before filling in staff and in this case, we were able to tell every member of the staff that we did not anticipate any layoffs as a result of combining forces.

We were also able to tell staff that they would be involved in the next step in the process which was to look at the feasibility of the merger. We needed to be sure that a merged organization would be financially sustainable, determine how operations would be combined, and examine how joint programming would look. Structurally, this next step included a Joint Committee made up of leadership from each organization and four subcommittees to examine particular issues. Staff and board members served on each of the subcommittees looking at Programming, Operations, Development and Communications. By involving staff in the process, they had more of a sense of ownership in the process alleviating some of the concern about what their jobs would look like when this was all over. This step took about four months with each of the boards of directors separately approving moving forward with the merger with both organizations recognizing that combining the organizations would ultimately improve service to the children of the community in line with both of their missions.

Quote by Henry Ford

The two organizations co-wrote a well-developed communication plan that included the creation of talking points and notification of a few key stakeholders prior to the public announcement. A later phase will involve actual implementation of the merger including meeting the legal requirements of combining the organizations, merging systems (ie. payroll, donor database, email, branding, shared database platforms). This process may take as much as a year to complete.

Here were some of my observations from being involved in the process and from what I know of the other mergers in my orbit:

  • Having a process is important. As noted last month, The Nonprofit Mergers Handbook by David La Piana, is an excellent resource for creating a thoughtful process.
  • The process of bringing together one or more organizations is going to take time and should not be rushed. The process is a little like dating before marriage. One needs to be sure that the outcome will be positive for all parties involved. As with all relationships, this takes time and builds a fair amount of trust.
  • Even when there is close alignment between the organizations and good reasons for merger, there are likely to be hiccups throughout the process. Relying on trust and a dose of grace will serve everyone well.
  • The more people who can be involved in the discussions, the more likely you are to have buy-in at the end. That does not mean a committee made up of every board member, staff and volunteer, but all should feel like they are represented and have an opportunity to ask questions and raise concerns.
  • The actual merger of organizations is not like flipping a switch that magically makes two organizations into one. Not every step in the process has to happen at the same time. Department staff can begin meetings and systems can be combined before the official paperwork is filed.

In the competitive environment of nonprofits, seeking public support, combining forces can improve program delivery and operations. Given the number of nonprofits that I come in contact with that have made this move in the last year, there appears to be a trend. You should examine whether this might make sense for your organization and one or more of your natural partners. That conversation starts with the board of directors. Understanding and evaluating all the areas of such a big transition will minimize the surprises and help you determine if the merger is in the best interest of the community you serve.

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Posted in Planning.