Should We Merge?

Merging road sign 2
Merging road sign 2

Recently, mergers and acquisitions have been a hot topic among my clients.  This concept has come up any number of times – almost always suggested by a Board member and motivated by for-profit corporate thinking.  Mergers and acquisitions do serve a purpose, but they are complicated and challenging to execute well in the for-profit sector, and potentially even more so in the non-profit sector.

First – I bristle when the concept comes up as a direct and solitary question, “Should we pursue a merger or acquisition?”  It is my firm belief that this question should only be an execution question to fulfill a strategic direction.  Why do you want to merge?  What goal are you trying to achieve?  Most non-profits run so lean that simply achieving cost savings is not a likely outcome of a merger and, therefore, shouldn't be a primary objective.

Of course, there are many strategic directions where a merger or acquisition could potentially be helpful – if an organization is seeking to build out complementary services, enter a new market, gain access to clients or donors that it can’t reach right now, etc.  And sometimes, foundations or other funders look so favorably on consolidation that they will provide additional support to organizations that are merging.

Having said that – there are a number of challenges relating to mergers that come to mind:

  • Even if two organizations offer similar services to similar clientele, the two organizations may have different models for how to provide their services.
    • Generally organizations have strong beliefs about their models of service, so major differences can be hard to bridge.
    • Fundraising does not often follow a simple 1+1 = 2 equation.  If an individual, foundation, or corporation is giving to both organizations – it is unlikely that they will give the total amount to a combined entity.  (Conversely, mergers and acquisitions can be useful when there is a dominant funder like the government. Working with a larger, combined entity might benefit that funder and the combined entity might be in a better position to capture greater amounts of funding.)
    • Culture fit matters even more in non-profits than in for-profit combinations
      • The Boards need to see eye-to-eye, and feel comfortable and aligned.
      • The staffs must feel that their cultures will mesh.  Oftentimes a non-profit's major assets are its people, and losing those people might greatly reduce the value of the combination.

A straight acquisition might be easier than a merger, as the acquiring organization can define the culture and the service model.  Mergers of two similarly sized organizations can be very challenging and time-consuming to execute. In these cases, true strategic value needs to be clearly identified to make it all worthwhile.