Mission + Strategy = Social Value

Merger Client Announces New Identity

My client, the Badger Asn. of the Blind & Visually Impaired, of Milwaukee, WI., which merged in 2009 with the Center for Blind & Visually Impaired Children, is launching their new identity today: they are now known as Vision Forward Association. Congratulations! http://www.badgerassoc.org/whatsnew/launch-party-open-house/ .

A New Source for Funding Nonprofit Mergers and Integrations

It isn't often that a funder calls me up to introduce himself, but that's what John MacIntosh of Sea Change Capital Partners did when he heard that I was active in nonprofit collaborations in the Midwest. John wanted to learn what I was up to and make sure I knew about a unique philanthropic fund dedicated to enabling nonprofit collaborations. The Sea Change-Lodestar Fund for Nonprofit Collaboration is itself a collaboration between the Lodestar Foundation and Sea Change Capital Partners.

The Sea Change-Lodestar Fund's mission is to facilitate and fund sensible collaborations among nonprofit organizations. it is prepared to help cover a portion of the one-time ocsts associated with nonprofit mergers and collaborations. It makes two main types of grants:

• Exploratory grants (generally $25,000 or less) to explore and evaluate a potential collaboration

• Implementation grants (up to $250,000) to cover a portion of the one-time costs associated with implementing a collaboration

John explained: Implementation grants are always made alongside funders of the collaborating organizations, often specialized in sector or from the local geography where the merger or collaboration is happening. Our fund believes in having a high engagement level with the leadership of the collaborating nonprofits, quick turnaround, and a thorough evaluation and approval process.

When I asked John why Sea Chanage was collaborating with the Lodestar Foundation on this fund, he replied, We each bring different things to the table. Lodestar is unique amongst foundations in its focus on collaboration. We were thrilled when they approached Sea Change about working together, and put the issue of nonprofit mergers and collaboration on our radar screen. The team at Sea Change has deep financial and transactional experience in both the nonprofit and for-profit worlds, so this was a very natural step for us to take in our effort to help nonprofits have more impact while also seeking opportunities to make leveraged grants. Sea Change does much of the front-end work, the analysis, the site visits, and speaking to the leadership. We have raised some outside funding for this work, though Lodestar remains the biggest funder and Sea Change the second biggest.

But I wondered how the fund defines "sensible collaboration." John explained that is when two or more nonprofits combine some or all of their important activities in a formal, long-term, or permanent way. It can take many different forms, including mergers, acquisitions, and various forms of alliances and partnerships. A sensible collaboration is one that has the potential to increase the efficiency, effectiveness, or sustainability with which they pursue their missions. We want to help organizations that have gotten to the point of exploring something or consumating a collaboration, to do it.

The really nice thing about this fund is that it is set-up to pay for what they call the "unavoidable but uninspiring" costs of collaboration, such as IT integration, re-branding, severance costs, and lease-breaking - costs that many funders would find an anathema. The fund is not a passive donor, however; it gets intimately involved in some of the transactions when it feels it can add value as an outside party. If the fund feels it cannot add any value it is less likely to fund the transaction. Guidelines state: Our due diligence process is intensive..." - so be sure you want a partner if you approach the fund for support.

And in this age of focus on cost-cutting and efficiencies in nonprofit mergers and integrations, MacIntosh had this to say: The whole question of cost-savings is more nuanced than many people believe. In our experience, saving money is neither necessary nor sufficient motivation for collaboration. Often the level of potential cost savings wouldn't be enough to justify the collaboration, but it's often enough to put the transaction costs in a healthy context. The ability to save money doesn't mean you actually save it, but instead you reallocate your resources to the program side. After all, the goal is not to reduce the budget, but to produce great contemporary dance, educate more children, etc.

The Sea Change-Lodestar Fund for Nonprofit Collaboration, based in New York City, takes proposals on a continuous basis from across the country. Are you aware of other new funds like this one? If so, send me a note so I can post something about it.

 

News Round-Up: Merger Stories from around the Nation: Fall 2009

Here are the stories on nonprofit mergers that made it into my Google in-box over the fall. I don't include stories about hospital mergers, (almost) no blog postings, and no links to marketing materials. I look for journalistic sources. Enjoy!

Phoenix, AZ, 9/2009 - Two Valley Agencies Come Together to Move Families from Homelessness Straight up the Ladder into Permanent Housing, source: Marketwire. Arizona's largest shelter for homeless families, UMOM New Day Centers, has merged with Helping Hands Housing Services.

Washington, D.C., 9/2009 - National Recycling Coalition Shuts its Doors, source: Earth911.com. After a failed attempt to merge with Keep America Beautiful, NRC announced Sept. 4, 2009 that it was closing operations.

Lebanon, Ohio, 9/4/2009 - Warren County United Way quits merger talks, JournalNews. The Warren County United Way elected to end merger discussions with two other local United Way agencies serving Butler County and Greater Cincinnati, ending the goal to create  a regional United Way office.

Norwich, CN, 9/13/2009 - Connecticut Red Cross merger cuts costs, NorwichBulletin.com. Seven Red Cross chapters have dissolved to form a single "Connecticut Red Cross Chapter," for the state of Connecticut, serving 3 million people and 147 towns.

Norwalk, CN, 9/13/2009 - Local United Ways join forces, head in new direction, The Hour online. Three United Way agencies have merged to form the United Way of Coastal Fairfield County.

Loveland, CO, 9/13/2009 - Single organization will run 24-hour shelter services from multiple locations, reporterherald.com. The day and night inclement weather shelters in Loveland will merge into a single entity.

Colusa County, CA, 9/22/2009 - Colusa Chamber to Merge, Sun Herald.com. The Colusa County Chamber of Commerce, Colusa County Economic Development Corporation, and the Colusa County Business and Visitors Center announced they will be merging. 

Juneau, AK, 9/27/2009 - Councils coming together, Juneau Empire.com. Alaska's two Girl Scout councils are merging to form the Girl Scouts of Alaska Council, as part of a national consolidation trend. 

Oklahoma City, OK, 10/1/2009 - Charity Inc.: Joining forces for a stronger sector, The Journal Record. A guest opinion by a nonprofit executive leader on the benefits of nonprofit mergers.

Cambridge, MA, 10/6/2009 - The Guidance Center Announces Merger with Riverside Community Care to Strengthen Child and Family Services in Massachusetts, PR Newswire. Just what the title says.

Fort Dodge, Iowa, 10/6/2009 - Northwoods Living to merge with Clear Lake agency, The Messenger. A merger of two behavioral health nonprofits serving people with disabilities announced they would merge.

San Francisco, CA, 10/12/2009 - Grassroots Science, San Francisco Chronicle. This is a blog  by Marina Park, who discusses the merger of five Girl Scout councils which became the Girl Scout Council of Northern California, which she leads today.

Hartford, CN, 10/19/2009 - Third of Region's Nonprofits May Close, Hartford Business.com. An article detailing the results of a survey of 1,900 nonprofit organizations in central and northeastern Connecticut. "About 25% of the nonprofits said they considered a merger during the last 12 months, up from 21% the year earlier."

Atlanta, GA, 10/19/2009 - Nonprofits budgets down, need up, Atlanta Journal Constitution. An article detailing the financial losses the local nonprofit sector is experiencing. "Mergers are still a popular possibility for nonprofits in the region," Lauren Welsh, VP, Community Foundation for Greater Atlanta.

Boulder, CO, 10/18/2009 - Access Counseling closes Boulder, Longmont offices, DailyCamera. A story about a nonprofit agency providing low-income counseling, in financial difficulty, but preparing for a merger with the local YWCA.

Cape Code, MA, 10/28/09 - Musical Groups May Joint Forces, Cape Code Times. The Cape Cod Symphony orchestra and the Cape Cod Conservatory are contemplating a merger.

Princeton, NJ, 10/27/2009 - Princeton Borough, Township back plan to study merger, Central Jersey and Mercer County News. Did you know there are two Princetons? The borough and the township governing bodies are studying the concept of merging.

Charlotte, NC, 10/28/2009 - Initiative seeks to reinvent charities, charlotteobservor.com. A story about the effort by the Foundation for the Carolinas to launch the $5M Community Catalyst Fund, to aid struggling nonprofits. The fund will finance new nonprofit business strategies, including mergers and partnerships.

Columbus, OH, 10/30/2009 - CATCO, Phoenix, join forces, The Columbus Dispatch.com. Two theatre companies, Contemporary American Theatre Company, and the Phoenix Theatre for Children, announce they will merge.

San Diego, CA, 10/29/2009 - Two county humane societies merge, Signon San Diego. The San Diego Humane Society and the North County Humane Society announce they will merge.

Bridgespan Study Pronounces Nonprofit M&A a Strategic Tool for the Sector

The latest, most interesting study on the impact of nonprofit mergers was just published today, Feb. 26, 2009 by The Bridgespan Group, entitled, Nonprofit M&A: More Than A Tool for Tough Times. The report, written by Alexander Cortez, William Foster, and Katie Smith Milway, documents 3,300 merger deals that take place over eleven years in four states: Massachusetts, Florida, Arizona, and North Carolina. The study reaches several interesting conclusions, one of which is that it appears from the analysis of the M&A deals that certain nonprofit markets are more favorable to merger activity than other segments of the nonprofit sector, and gives the example of Child and Family Services. It's a great piece of work and will be very useful to organizations exploring M&A strategy for their own organizations. To download a full copy of the report, go here.

Paul Brest, Pres., William and Flora Hewlett Foundation Advocates Good Nonprofit Mergers

 

Another foundation leader was recently quoted as advocating for nonprofit mergers during these tough financial times. In an interview with Philanthropy News Digest, Paul Brest, president of the William and Flora Hewlett Foundation was asked, "What is your view of mergers in the nonprofit sector?" Mr. Brest replied, "My view is that there is not enough pressure for mergers in our sector, and a time like this is an opportunity to look for good mergers, if circumstances warrant it."

It seems like the philanthropic voices in favor of nonprofit strategic re-structuring, or consolidation, are building. I wrote in my last posting about The Lodestar Foundation and their new national competition on the best nonprofit consolidation called "The Collaboration Prize." They received 644 responses to their competition which will award $250,000 in cash to the eventual winner to be announced March 5, 2009. We need to make sure that organizations are not pushed willy-nilly into the strategy, but to focus instead on Mr. Brest's words, "to look for good mergers." Still, it's interesting to see the momentum building for the strategy.

Hawaiian Nonprofits Say 'Aloha' to Merger, in their Own Distinctive Way

 I am a strategic re-structuring consultant and I love to collect stories about nonprofit mergers and partnerships. Daily I find cases in my in-box from all over the country, and most are so run-of-the-mill that they are not distinctive enough to write about in my blog, but today I have one that is. It comes via The Maui News, June 21st, which reported that three nonprofit mental health and substance abuse agencies on the island of Maui announced a merger of their organizations - Maui Youth and Family Services, Malama Family Recovery Center, and Aloha House. They are consolidating because "it will make us stronger," according to Judd Cunningham who will be the new CEO of the combined organization.

A lot of their merger story is ordinary. Their motivations for a merger were quite typical - they wanted to improve back-office administration, create seamless programs for their clients, and grow their services. As with other mergers, they combined all three boards into one entity and selected one board member, Peter Cahill, the former chairman of the MYFA Board, to lead the consolidated governing structure. Then the board selected Cunningham from Aloha House to be the new CEO of the combined entity.

But this merger is different in one very interesting respect: the name. In most consolidations the nonprofits would agree to choose one name for the merged organization, but not in this case. The three agencies expect to operate under their individual names.

Why would they choose do that?

I can think of two reasons. By keeping the individual names they are sending a message to the community that the merger has not caused any changes in the programs which they have come to rely on. In fact, the merger impacts administration and governance of the programs, and not the individual programs themselves. If they were not paying attention, most people in the community would have no idea that a merger occurred at all, and that is ideal from a client perspective.

Another reason to consider keeping separate identities is the concern about inappropriately mixing customer groups. The clients of a family agency may not want to integrate their children into a nonprofit which provides addiction treatment services to adults. By maintaining separate identities and separate program locations, the community does not need to be concerned that the client populations will be inappropriately consolidated into a single organization or location, and the consolidation can then proceed in the areas where it needs to most: administration and governance.

It will be interesting to see how this strategy of keeping the three names works in the future. If you are aware of a merger that has kept separate identities, write and let me know how it has worked out.

60 Ways to Leave your Merger Partner or When a Board Just Can't Say 'I Do'

I collect lots of stories from the web about nonprofits that have successfully completed mergers, but only rarely do I find stories about two nonprofits that fail so miserably at a merger attempt that it makes the news. One such case came to my attention last month and makes for a great opportunity to talk about all the reasons people leave their merger partner.

The story is this: two California coastal public radio stations, KUSP and KAZU, made a decision to enter into a merger process. Their reasons for seeking a merger were much like those of other nonprofits. The two stations were providing many of the same services in the same community and they wanted to eliminate duplicate programming and overhead expenses "to free up resources for other projects, such as more local news reports on the stations," according to KUSP station manager Terry Green.

For a year, the two nonprofits worked on the merger details. They hired a public radio consultant to work with them to create a new nonprofit entity to house the single radio station post-merger, and last September, they completed a six-month study on the future of public radio in the Monterey Bay area where the two stations are based.

All their work was done and now it was time for the boards to vote for the merger and then it happened. In a closed-door session the board of KAZU, the CSU Monterey Bay Foundation, unanimously voted against merging with KUSP. The Board did not explain how they arrived at their decision, but many possible reasons come to mind.

Many nonprofit mergers go down due to staff and board leadership decisions that have to do with the following issues:

• Mission impact: worries over how the mission may change and the loss of focus to the mission, particularly when a small nonprofit is merging with a larger institution

• Loss of identity: an inability to let go of the nonprofit brand and its organizational history including its stories that people cherish and don't want to lose

• Program cuts: fears that specific services which the nonprofit have created for their clients will be changed or lost if the nonprofit is no longer there.

In David LaPiana's excellent book The Nonprofit Mergers Workbook, Part I, he discuses other barriers including the loss of autonomy and self-interest:

Merger threatens autonomy, which is the lifeblood of most nonprofit organizations. In a sector offering low compensation, long hours, and the stress and uncertainty of continual fundraising, independence is one of the very few rewards available to nonprofit leaders...Whether it is board members fearing loss of attachment to a beloved organization or cause, or staff fearing loss of status or even loss of employment, self-interest is  a legitimate and major issue that an lead to many breakdowns in merger negotiations.

In all of these cases, a good facilitator can help the boards and staff work through the roadblocks, both emotional and otherwise, as they go through the merger process. A good merger facilitator will flush out all the issues early in the process and work with both parties to determine if the problems can be overcome or not.

Better to know the merger partner has no intention of merging sooner, rather than later. Unfortunately for KUSP and KAZU, they went all the way to the altar before discovering that they probably never really had a commitment to begin with.

Cost of Serving Government Grants Drives Nonprofit to Merge

"It's overwhelming what the government requires you to do as a nonprofit with a small office staff," said Rob Stemple, Marketing Director for the former Somerset County Blind Center, which is now a division of the Susquehana Association for the Blind and the Vision Impaired (SABVI), in Somerset, Pennsylvania. Well said. Small nonprofits are particularly vulnerable to the difficulties of managing complex, onerous government contracts with lean staffs who are usually carrying out multiple responsibilities. Does this mean that small nonprofits should not have government contracts? No, but it is important for organizations to carefully assess the costs of contract compliance before agreeing to accept a government grant which could have onerous contracting requirements that small nonprofits are unable to meet. It takes deep back-office operations with talented professionals (paid the way talented people usually expect to be paid), to meet complicated contracting demands. What should small nonprofits do? Well in this case, Somerset County Blind Center chose to become a division of another nonprofit so they could focus more on the mission and less on the paperwork. In this case, it was a happy ending because both organizations were able to expand their missions and secure their futures.

Nonprofits Merge to Grow Efficiently

Over the holidays, several articles hit my "in box" about nonprofit mergers. Year-end is a big time to finish up mergers in order to to start up the combined organization in the new fiscal year. One of the more interesting mergers I read about was between Renaissance Entrepreneurship Center ($2.2M/year, 16 staff) and Start Up ($350,000/year, 3 staff), both in the Bay Area.  An article about the merger appeared in the Silicon Valley/San Jose Business Journal on Dec. 24th and explained that the purpose of the merger, as we have seen in other articles in this space, was to take advantage of the each organization's geographic placement in the market. "This is a way for Renaissance to provide programs on the Peninsula without reinventing ourselves," said Sharon Miller, CEO of Renaissance and the person who will be the CEO of the merged organization.

According to Miller, the two organizations together will serve expanded populations and geography, and though they will be eliminating some overhead costs no staff will be laid off as a result of the merger at this point in time. Total expenses for the merger ran to $250,000 which will be covered through grants from the Silicon Valley Community Foundation and the Omidyar Network. This is an example of what I think of as efficient growth: why write a lot of grants and take years to build up your geographic foot-print when there is a potential partner in the very market where you would like to expand your services that you could merge with, instead? If the potential partner has similar mission, programs, delivery mechanism, outcomes, and financing method, why wouldn't you consider a merger?

Mergers Are Better for Growth than Economic Gain

One of the best ways to learn about nonprofit mergers is to read about other people's experiences. One very thoughtful piece I have recently read is called From Corner Cafe to Corporation: The Inspiration Corporation Merger Experience,  which highlights the benefits of a merger as a strategy for growth. The paper was published by Inspiration Corporation, a Chicago-based nonprofit dedicated to ending homelessness through supportive services, employment and training, and housing programs. Inspiration Corporation completed two mergers with two separate Chicago nonprofits: The Employment Project and The Living Room Cafe. The paper, written by Chris Persons, the former Executive Director of Inspiration Corporation, is an in-depth piece (get ready, with attachments it's 56 pages), which describes the motivations for each merger and the process that they went through to complete each one. Inspiration Cafe, the original nonprofit prior to the mergers, grew to become Inspiration Corporation, a citywide nonprofit about twice their original budget and program size. Thus far, Inspiration Corporation feels that they have benefited from the mergers, primarily through the geographic and program expansion the combined mergers created for their organization. The current executive director, John Pfeiffer is firm in his belief that mergers rarely produce significant capital for nonprofit growth or dramatic organizational efficiencies. As John states, "I've seen how mergers can promote the strategic reconfiguration of program offerings - weeding out under performing and overlapping programs, for example - but apart from offering incremental gains in efficiency, and fuller and more marketable program arrays, I'm not optimistic that mergers can deliver significant unrestricted resources for most human service organizations." Capitalizing Inspiration Cafe was not the primary motivator for their seeking the mergers in the first place. Instead, Inspiration Cafe wanted to grow and expand its services to their clientèle which they definitely achieved. Inspiration Corporation, at the conclusion of their paper, states that the organization is not done with its merger activity; they will seek other merger opportunities that meet with their mission and strategy.