How do you know if a merger might be in your future? Take this test.
Do you want to add new services, particularly services that require funding or a license you do not have?Yes No
Would you like to expand the geographic reach for your current services?Yes No
Would you like to deepen your business services? Are you having trouble paying for I.T. or outcome measurement systems?Yes No
Is your Board weak? Do you have trouble recruiting and retaining strong directors?Yes No
Do clients and others confuse your nonprofit with another organization?Yes No
Is a merger right for your organization?
Hopefully these questions have started you thinking. Nonprofit mergers are increasing for many mission-related reasons, and yes, some financial reasons as well. We suggest you start a dialog at the Board and President/Executive Director level to understand what a merger could mean for your organization. The dialog may result in no action, but if taken seriously, the discussion will have many benefits. We suggest Boards have this discussion every 12–18 months.Submit your results
It can be faster to add new services through a merger than growing them organically. Many state governments, due to the recession, are not growing program budgets. This leaves nonprofits that wish to add new licensed services little choice but to merge with nonprofits that have the desired licenses.
Increasingly, government is moving towards managed care, or outcome-based contracting and licensing. If you are not looking to add new services now, it may be that the government will soon be requiring changes or additions to your current contracts. Be sure you are aware of the current changes in government regulations for your contracts.
Often extending services to a new neighborhood, city, county, or state can be difficult. Trust and knowledge of your organization take time to create. One of the most efficient ways to grow geography is to merge with a nonprofit similar to yours that is situated in a desired location.
If you are not looking to expand geography now, think about which of your competitors might be. If there are one or more nonprofits that are expanding their geographic reach, they may wander into your territory. This might present an opportunity to think again about your geographic reach.
Raising unrestricted funding is extremely difficult and has been for some time. Nonprofits need these dollars to pay for back-office services. Raising unrestricted funding is a skill, and one which takes time and money to build. One of the first signs a nonprofit might need to initiate a merger is its lack of unrestricted funding and viable strategies for getting it.
You can never raise enough unrestricted funding. Is there something to be gained through a merger with another nonprofit that might help you in this area, e.g., a valued board member, donor, or fundraising professional?
Many nonprofit organizations have had to cut or eliminate certain services in their back office. In addition, there has been a long-term trend in nonprofit organizations to measure their outcomes with information technology systems. These I.T. systems and the personnel required to operate them are very expensive. Mergers are often driven by the opportunity to combine budgets and staff for back-office services and I.T. Mergers allow nonprofits to create efficiencies and increase the quality of these services, particularly in the areas of I.T. and outcome measurement systems.
If you are already strong in the back office, perhaps you have excess capacity, particularly in areas such as I.T. and outcome measurement. If so, could this excess capacity be better utilized by spreading it over more units of service?
Frequently, when there is an existing or planned departure in the CEO position, boards of directors will consider a merger strategy as a means for filling the leadership post. In a recent study on nonprofit mergers , 80% of the mergers had a departing executive director via a planned retirement.
Perhaps you know of a nonprofit in which there is going to be a vacancy, and rather than hire someone new, it would consider joining forces with your nonprofit and sharing the same CEO.
A weak Board is a huge problem for a nonprofit, and possibly a sign of organizational failure. A strong governing Board is more than one or two individuals trying to keep the boat afloat; it is a team of individuals working collaboratively to manage the organization with the staff. When two organizations merge, the strengths of both Boards are combined.
If you have a strong Board, good for you! Perhaps your Board could prove attractive to another nonprofit that may be interested in a merger. If so, it is a very strong selling point.
There is more competition than ever in the sector, and fewer resources than we have seen in a long time. This trend is not going to change. If your nonprofit cannot compete successfully for necessary grants because of organizational weaknesses, an analysis of the causes may be in order. It’s possible that joining forces with another nonprofit could create a stronger, more competitive resulting organization.
If you are good at competing for grants, this could be a very strong selling point to another nonprofit that may be interested in merging with you. Together, you may be able to compete for larger grants than either of you were eligible for before.
If this happens to your organization, you may want to consider having a merger conversation with the other nonprofit. If you are so similar that people confuse you, merging may be a natural strategy for you to pursue.
If not, you probably have a very strong brand, and that is good. But could it be that your brand is so strong that other nonprofits are confused with yours? If so, who are they, and would a merger with one of them be beneficial to you?
Often long-time donors are the first to mention the word “merger” to a nonprofit executive. This is because they have watched your organization over time and are familiar with the merger signals and the market. Think of your donors as your closest confidantes; they care about what happens to your organization and will help you.
If no, perhaps donors are suggesting that you consider acquiring a troubled nonprofit. If you represent a strong nonprofit, you may be frequently approached by donors and other agency directors about mergers. You should consider creating a process for reviewing these opportunities.