March 4, 2014

Nonprofit Mergers That Make a Difference: An Introduction

In an effort to provide insights into the "how" of mergers that succeed, Bridgespan has combined forces with La Piana Consulting, the Catalyst Fund for Nonprofits, and The Lodestar Foundation to offer up a collection of case studies and blogs on "Mergers that Make a Difference," and stimulate an online conversation on what works.

Consider this true story: two nonprofits, leaders in their field, saw tremendous mission and program synergies, which they tested through a variety of collaborations. Confident that a full merger could scale their impact, they announced their intent, formed a merger committee across top leadership, and began formulating program, funding, and branding strategies. Then they hit a barrier. Despite apparent program advantages and potential to raise more money as a merged organization, the time and cost of integrating financial, human resource and information systems was too high. They jointly agreed to abandon the deal.  

The United States has nearly 40 nonprofits per US zip code, according to the Urban Institute, and many of their leaders see room for consolidation. Indeed, recent Bridgespan research found that 20 percent of nonprofit leaders include considering mergers as part of their strategy; and more than 80 percent were engaging in some form of collaboration. That’s because nonprofit unions are often an effective way to deliver more and better services at lower cost. Mergers can strengthen a field—they can more rapidly scale a proven approach to employing disaffected youth, preventing teen pregnancy, or expanding environmental conservation—than building out programs site by site.

Still, the quest to merge too rarely results in the ability to merge. In an effort to provide insights into the “how” of mergers that succeed, Bridgespan is combining forces this month with La Piana Consulting, the Catalyst Fund for Nonprofits, and The Lodestar Foundation to offer up a collection of case studies and blogs on “Mergers that Make a Difference,” and stimulate an online conversation on what works.  The merger cases, which launch on March 6 (register for alerts), record rationales, catalysts, due diligence challenges, and integration tactics, as well as results to date. The blogs will come straight from the trenches: nonprofit leaders who have led mergers will reflect on how they are navigating bumps and seizing opportunities. You’ll hear a gamut of situations—from nonprofit leaders like Elisabeth Babcock, president of Crittenton Women’s Union, now eight years along in a merger of equals, to Serena Powell, executive director of Community Work Services (CWS), a smaller agency just five months into merging with a much larger nonprofit, now CWS’s parent. On March 11, Stanford Social Innovation Review will host a webinar with some of our series practitioners on “Overcoming Challenges in Nonprofit Mergers.”

How do these challenges parse?  Our earlier research noted that some of the barriers to merging are structural: it’s hard to find and afford the right match in a sector with few matchmakers nor much funding for merger due diligence and integration. Other barriers are people-centric and emotionally charged: boards can conflate advancing mission with conserving their organization; and senior staff can balk at the specter of job redundancies (quite naturally). Moreover, these hard and soft barriers may rise and fall depending on a merger’s rationale. Our case collection will cover the three typical rationales for any nonprofit merger: broadening scope of services, growing economies of scale, and streamlining operations.

For example, a union designed to expand a program's scope often involves a large organization (like a child welfare service agency) acquiring a smaller one with specific expertise (like early childhood development). The small organization gains administrative expertise and efficiencies, and the larger gains skills and knowledge from new staff members (who, if given the opportunity, can enable the entire organization to grow stronger.) The CEO of the small organization may become a unit leader in the merged entity, bring one board member with him or her, and make the acquired organization’s brand a sub-brand (like Tostitos is a sub-brand to PepsiCo).

If, however, the merger is supposed to grow scale or streamline operations by, say, merging two affiliates of a national network, the brand question can be trickier. More board members may want to migrate with the merger and some roles will become redundant. For certain, in such mergers, it’s simply harder to find justified and satisfying roles for all senior staff members, as you’ll only need one where once there were two (think COO, CFO, CEO, and the heads of other administrative departments).

Such strikingly different rationales and commensurate challenges make it clear that if we believe mergers are smart, we need to pay more attention to the why and the how. We hope you’ll journey with us this month as we explore both questions, and join the conversation with leaders of mergers that are making a difference.

Katie Smith Milway is a partner with The Bridgespan Group and co-author with Bridgespan Manager Maria Orozco and Consultant Cristina Botero of “Why Nonprofit Mergers Continue to Lag,” published this month in Stanford Social Innovation Review (SSIR). SSIR is offering a webinar March 11 at 2 p.m. Eastern hosted by Milway on “Overcoming the Challenges of Nonprofit Mergers.”

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