Nonprofits don't have to go it alone: A discussion with Ron Reed on nonprofit mergers
By Ron Reed, Consultant for MAP for Nonprofits
I have worked in the nonprofit sector for more than 40 years, and for 28 of them I was the CEO of Family Service of St. Paul. During my tenure, Family Service participated in seven mergers and my interest grew from that experience. In 2007 I joined MAP for Nonprofits and we developed Project ReDesign, which encourages, guides, and supports nonprofit organizations that are considering a merger, program transfer, acquisition, alliance or restructure.
Even though nonprofit mergers have risen in the last decade and continue to do so, there is not a lot of scientific research available. There are numerous articles and case studies, but not much is known about how to help ensure positive outcomes when organizations decide to merge.
About a year and a half ago MAP decided to collaborate with Wilder Research and develop a scientific study about nonprofit mergers in Minnesota. We have divided our study into three phases. Phase I included a research literature review, focus group and key informant interviews and was completed in December 2010. Phase II will consist of data collection and will be completed by December 2011. Phase III will include data analysis, report dissemination and a presentation of our findings to study participants and will be completed by September 2012. From Phase I we have our first report- “What do we know about nonprofit mergers?”
We all agree that we are in very difficult financial times and it is not likely to improve in the near future. Nonprofits are under increasing pressure to increase efficiency, reduce duplication, and achieve economies of scale. I am not saying joining in a merger or collaboration is the only option, but it may be an important option for some organizations.
To me, it is ultimately about saving services. A successful merger can help two organizations with complimentary missions and services leverage resources, enhance service offerings, and become more cost effective. It can also, in many cases, capitalize on talented leaders and provide opportunities for staff advancement. If a small nonprofit provides one really valuable and important service, it often makes sense for them to join with a larger organization that has the leadership, stakeholder base, and infrastructure that smaller nonprofit needs to save its mission and continue to do good work.
Our study identified 30 factors that can affect the success of a merger, and they are categorized into pre-merger, merging process, and post-merger stages. These include such things as financial soundness of the merging organizations, external conditions, leadership, stakeholder involvement, role of staff during the merger process, integrating formal and informal structures, climate and culture, and organizational capacity and structure. The 30 factors are really informative, and organizations and their boards should take a good look at them when considering whether or not a merger is a good idea.
One factor that can often be an impetus or “tipping point” for considering a merger is when there is a change in leadership. Many longtime executives are retiring. Boards are looking for how their organizations can best provide service. They will look at how they can save their mission and continue on as part of a larger entity. A good time to consider realignment is during leadership transition.
It is important to understand the differences between for-profit and nonprofit mergers. For-profit mergers are motivated by profitability and competitive advantage. They are market driven with shareholder concerns. The merger process is confidential and communication is consequently restricted. Nonprofit mergers are motivated by what’s in the best interest of the community and those they serve. They are mission driven with a community board of directors. The merger process is inclusive and communication is open. Values and accountabilities about mergers are very different between the two sectors. That said, there is a lot nonprofits can learn from the for-profit merger experience.
This first report reflects our work on phase I. In phase II we will be collecting data from 40 Minnesota organizations that have merged in the last decade. Currently we are engaging nonprofits to participate in the study. It is exciting work, and we have found that the executive directors are more than willing to share their experiences – both the positives and the negatives. They want to help other nonprofits who might consider joining forces.
MAP has received funding from the Greater Twin Cites United Way, the Phillips Family Foundation, Wells Fargo Foundation Minnesota, and the AJ Huss Family Foundation to cover the cost of the study.
Ron Reed currently works as a consultant to MAP for Nonprofits with a primary focus on the MAP Wilder study. He has served the nonprofit sector for more than 40 years as a CEO, a board member, and community leader. Prior to joining MAP in 2007, Ron was the CEO of Family Service Inc. of St. Paul. He holds a bachelor’s degree from the University of Minnesota and a master’s degree in social work from the University of Michigan.