Mission + Strategy = Social Value

Nonprofit Merger Secrets to Success

A new report called "Success Factors in Nonprofit Mergers" was published last month by MAP for Nonprofits, a capacity building organization for nonprofits based here in the Midwest in Minneapolis, MN. The multi-year study completed by Wilder Research identifies what factors lead to successful nonprofit mergers, and analyzes what happens after a merger is implemented. The study examined 41 mergers between January 1999 and June 2010, and included interviews with 201 individuals - three to eight people per merger, including at least one executive director, board member, and representative from the dissolved nonprofit. It also looked at financial data obtained from publicly available 990 tax returns and accessed through Guidestar.

The researchers were ablet to identify a variety of success indicators for a merger in areas such as outcomes, reasons for merging, merging process, and financial analysis.  Here are just a few of the interesting highlights:

Ninety-five percent of respondents believed that the merger would not have happened if one of the executive directors had not driven it. Also, in 80 percent of the mergers, the executive director of one of the pre-merger organizations had recently left or was soon to retire.

When the board of each pre-merger organization was very involved in the merger process, respondents were more likely to report that the merged entity had a positive image, reputation, or public support three years following the merger.

Mergers may work best when the nonprofits have a history of partnering together and openness, and when there is transparency in both legal and financial matters.

Merger success is associated with how well non-administrative staff members are informed about the progress of the merger and the involvement of non-administrative staff members in the planning and implementation of the merger.

The study supports many best practices for facilitating a merger as well. It also confirms that organizations feel they should use consultants; 96 percent of respondents said they would involve a consultant in future mergers.

There is much more information in the study than I've shared here, and I encourage you to either read the full study or the shorter synopsis, particularly if you are considering doing a merger yourself. I am grateful to MAP for Nonprofits, Wilder REsearch, the Greater Twin Cities United Way, and their partners for making this research possible and for sharing it with the entire nonprofit sector. I also wish to acknowlege my good friend an dmentor, Ron Reed, who was integraal to making the study possible. Ron helped launch Project Re-Design, the mergers and collaborations practice at MAP for Nonprofits, and co-wrote "MergeMinnesota," a merger how-to manual that is available for free on-line, a really great resource.

 

MergeMinnesota Publication is Now Available On-Line

MergeMinnesota, published by MAP for Nonprofits is now available as a PDF document here. I reviewed this booklet in 2009 for this site, and described it as "crammed full of information about the nonprofit merger process, from soup to nuts including a template for the steps to organizing and implementing a merger, stories about completed mergers, and appendices which identify experts, a literature review, and a very nice bibliography...it's so nice to have all that information in one place." After re-reading MergeMinnesota, I still agree with my original assessment - even more so. MergeMinnesota was written by Ron Reed of MAP for Nonprofits and Susan Dowd of the Library Strategies Consulting Group, The Friends of the Saint Paul Public Library, with the support of the Wells Fargo Foundation and The Greater Twin Cities United Way. Now Merge Minnesota can be downloaded to you as a PDF file, simply by clicking on the link above and is a great addition to your strategic restructuring library.

Learning from the Nonprofit Merger Trail Blazers: An Interview with Debbie Hinde, CEO of Vital Bridges

As I introduce people to the concept of nonprofit mergers and collaborations, it's hard to remember that for some people, these concepts have been around a long time. Take Debbie Hinde and Vital Bridges in Chicago, Illinois, for example. I recently was re-introduced to Debbie when she was part of a group of HIV/AIDS social service agencies meeting to hear a presentation from me at the AIDS Foundation of Chicago about strategic re-structuring. Debbie could have given the talk and in fact, I asked her at one point in the training to tell her story.

It was 2002 and the AIDS service sector in Chicago was greatly fragmented with over 200 nonprofit agencies, a great many of whom were providing one or two services to a small clientele who were then forced to go from organization to organization to get all their needs met. Many of these small nonprofits, each with their own overhead operations, were financially unstable and inefficient. At the same time, the funding environment for AIDS services had changed dramatically due to the downturn in the economy at that time and shrinking private dollars due to the perception that the disease was now a manageable problem.

Due to these conditions, three HIV/AIDS service organizations decided to merge together: Open Hand Chicago (the organization Debbie was leading at the time); Community Response, Inc.; and the HIV Coalition, Inc., or HIVCO. The goals of the merger were twofold: to expand and enhance client services; and to build financial strength and stability for one nonprofit. The result became Vital Bridges, the combined entity with a budge tof $4.6M, serving a clientele of 2,400 people in metro Chicago living with HIV and AIDS.

Vital Bridges has gone on to improve services to their clients including expanding the availability of fresh fruit and meat throughout their distirbution area, launching 32 units of permanent and transitional housing, and adding mental health therapy to their portfolio of services. Case Managers are now available to clients in a one-stop-shop format in their grocery center sites when people pick up food. And there is now one lean, efficient, financially strong administration running what was once three separate nonprofit agencies.

The Bridgespan study on nonprofit mergers, M&A: Not Just aTool for Tough Times, makes the point that the rate of nonprofit mergers is roughly the same (1.5%) as it is for the for-profit sector (1.7%). People are shocked to learn the nonprofit rate is a shigh as the for-profit sector. That's because a lot of small to medium-size nonprofit organizations are very quietly merging without a lot of fanfare, but with great effect. Vital Bridges is one example of the quiet leaders in the nonprofit sector which some time ago started using strategic re-structuring tools to expand mission for their clients. And seven years later, this merger is still having impact today.

A Podcast on Nonprofit Mergers for your Next Board Meeting

Do you have trouble getting your board members to attend a governance training? Then here is a great solution for you. The Board Star podcasting program On Being Board is designed for busy board members.  This on-line training service provides almost 100 governance topics in 8 to 10 minute brief podcasts which are designed to be played and discussed at board meetings. The podcasts can be downloaded for free via I-Tunes so you really have no excuse not to use this service.  The podcasts are produced by The Nonprofit Management Fund, based in Milwaukee, Wisconsin headed by Pat Wyzbinski, and are funded by the Northwestern Mutual Foundation . Board Star's mission is to strengthen nonprofit boards and On Being Board is only one of their programs. Recently, yours truly was taped for broadcast on the topic of Nonprofit Strategic Re-Structuring. Take a listen here to my podcast and even better, download it for your next board meeting and discuss whether or not strategic re-structuring should be in your nonprofit's future. And while you're at it,  join Board Star and start getting their downloads via e-mail.

An Inspiration to the Nonprofit Sector: The JCC and YMCA of Greater Toledo Area, Collaboration Prize Co-Winners!

On March 5th, the winners of The Collaboration Prize - the national competition with a cash award of $250,000 for the best nonprofit collaboration in the U.S. - were at long last announced by the Lodestar Foundation and AIM (the Arizona-Indiana-Michigan) Alliance. Appropriately, it was a tie! The blue ribbon panel of judges selected the YMCA & JCC of Greater Toledo and the Dallas Museum of Nature and Science to share first place.

One of the most unique mergers I have ever seen is the YMCA & JCC of Greater Toledo. This collaboration of one Jewish nonprofit with a Christian-based nonprofit was truly inspiring to me. I asked Abby Suckow from the United Jewish Council/JCC and Connie Torrey, from the YMCA of Greater Toledo, the current professional leaders of this collaboration effort, if they wold tell us how it came to be.

Mission Plus Strategy: How did this collaboration effort get started?

Abby: We had a long history of working together or in parallel ways. In 1999 we began by doing joint programming and membership. The YMCA expressed interest in building a new facility with a presence in Sylvania, Ohio but we already had a campus with 44 acres, a pool, and a  lot of what the YMCA was looking for in a facility. We realized there was an opportunity to work together to share what we had. We could provide them with a site and space, and enhance our services to our community; the YMCA could save the dollars and the effort from a capital campaign to build a brand new community center.

Connie: We went in steps beginning with an affiliation agreement in 1999, sharing offices, and doing joint programming. We dated, then engaged, and finally married. In January 2004, we signed the actual integraiton agreement.

Mission Plus Strategy: Can you describe your collaboration - is this a merger?

Abby: Technically, we call this an "integration," however it walks and talks like a merger. The JCC of Sylvania, Ohio (outside of Toledo, Ohio), is now a branch of the metropolitan YMCA of Toledo. We have a local board with both Jewish and non-Jewish representation and representation on corporate committees and boards of the metro YMCA board.

Mission Plus Strategy: Did the merger change who you serve?

Connie: The merger allowed each of our agencies to serve who they serve best, drawing from the strengths of each agency. The YMCA could handle all of the recreation activities, and daycare programs, where we are strong.

Abby: And because the YMCA was handling all the recreation and fitness programs, that freed us up to completely focus on Jewish community programming and increase our services from cradle to grave. We now have two synagogues on the campus where we had one before. The United Jewish Council has built a beautiful state of the art facility where the YMCA offers expanded services for children including daycare, and the Jewish Family Service has relocated to the campus.

Mission Plus Strategy: What message do you think your selection as co-winner of the Collaboraiton Prize sends to the nonprofit sector?

Abby: The message is that two faith-based organizations that are well-respected, are honest with each other, communicate openly, and trust each other, can do anything. We were very forutnate that our lay and professional leadership at the time shared all of these qualities plus the vision to see it through.

Mission Plus Strategy: What advice do you want to pass on to other nonprofits considering nonprofit mergers or partnerships?

Abby: it takes a lot of respect, camaraderie, honesty, and open communication to do this. With those things in place, you can build on that. Without the leadership of Joel Beren, former CEO of the United Jewish Council/JCC, Robert Alexander, President and CEO of the YMCA & JCC of Greater Toledo, Paul Schlatter, Chairman of the YMCA & JCC Corporate Board and the many other volunteers from both organizations, this would never have come to fruition.

Connie: With common goals, you can head down the same path. Trust is huge.

I want to congratulate YMCA and JCC of Greater Toledo for their exceptional collaboration and showing us that it's the possibilities we need to concentrate on, not the differences between us. Readers who are interested in finding out more information about this merger can go here. Look for more information about The Collaboration Prize winners to appear in my blog.

Lesson from Mergers: Pursue them When Your Agency is Healthy!

In an article published in the December 2008 issue of the Chronicle of Philanthropy, the Bridgespan authors discussed their findings from research examining 3,400 nonprofit mergers which occurred over a decade.  There were some very interesting discoveries they identified, including the fact that mergers happen at about the same rate in the nonprofit sector as they do in the for profit sector.

But the one fact I want to point out today is that leaders most often cited financial distress and leadership vacancy as the two reasons they most often sought a merger. The authors make the distinction between opportunistic and strategic reasons for seeking a merger. For instance, the previous reason - financial distress - would be an opportunistic reason for seeking a merger. Opportunistic reasons often come late in the game when the organization may be seeking stability more than expansion.  Strategic reasons happen earlier in the organizational development process, before there is financial stress, actually when your organization is healthy but starting to tap out its funding, geography, skill set, etc. This is when there may be an opportunity to expand impact more efficiently by combining programs, geography, skills, assets, leadership, and opportunities between two or more nonprofits.

The authors present an excellent example of a strategic use of merger strategy in their article. Are you looking for ways to stretch the social value of nonprofit organizations? You can do so through mergers, but you need to be strategic. Think earlier in the process, not just when you are ready to leave a leadership position or when you are in financial distress. Do it when your agency is healthy! Is there a strategic merger you can identify for your nonprofit which would grow the social value you can provide to your community?