Nonprofit Mergers in 2021: Executive Briefing

Nonprofit organizations can and should consider using mergers as an effective tool to achieve their goals, advance their mission, and increase their impact

The Stanford Innovation

Why Consider a Nonprofit Merger?

Mergers are occurring in the nonprofit world at a rising pace. A wide variety of timely factors can make a merger an attractive consideration for a nonprofit, among them:

A financial crisis or the acceptance that a watershed is nearing
The departure of a CEO, Executive Director or President
A pre-emptive move to mitigate competition
A growth strategy arising from your strategic plan
A struggle to recruit or retain staff or board members
The recommendation of a funder interested in consolidation in the field
Interest to merge from another organization

Benefits of a Merger

Before moving forward with a merger, it's important to consider what you are aiming to achieve. Here are some of the possible advantages to take into account:

Continuance of a program or location
Improved impact by integration of complementary programs
Decreased total administrative costs
Stronger positioning with clients, funders, competitors and policymakers
Stronger BOD and better position for future board recruitment
Stronger management staff and better positioning for future executive recruitment Job retention for current staff

Potential Challenges

Pursuing a merger can mean encountering some difficulties. Here are some of the challenges that may arise along the way:

Finding the right partner
Staff retention if there is duplication of effort
Program continuation and legacy concerns
Board member transition and retention
Liabilities must be carefully investigated and vetted to determine their impact on the future organization
CEO/Executive Director succession
The naming and branding of the new organization
Funder involvement

Types of Mergers

While there are numerous ways to join two organizations together effectively as one, the following are four common approaches:

Acquisition Merger - Organization A (the “acquired organization”) dissolves and merges into organization B (the “acquiring organization”).
Asset Acquisition or Asset Transfer Merger - Organization A transfers its assets to Organization B. Its liabilities are not transferred; rather, Organization A disposes of them by other
Mergers of Equals - Organization A and Organization B both dissolve into a new organization.
Change of Control - Not actually a merger, but an arrangement by which control of an organization is transferred from one entity to another.

CHANGE OF CONTROL EXAMPLES

Working Examples Interlocking Boards: Boards are reconfigured so that two entities have the same board members, with one entity controlling both boards.

Parent-Subsidiary: One entity rewrites its bylaws to become a membership organization with only one member, and it names the other entity as that member which, in effect, gives the parent control of the subsidiary.

Management Services Contract: The board of the organization to be acquired resigns and is replaced by the acquirer’s board which, in turn, operates the organization through a management services contract.

10 KEYS TO A SUCCESSFUL MERGER

Source: Metropolitan Chicago Nonprofit Research Study

A successful merger is one that meets the needs and goals of all parties involved, and leads to improve services and/or increases impact.

Trust is the glue that hold together all other issues in merger negotiations.
Mission, mission and more mission.
In the most successful mergers, all parties are clear about their organization’s overall goals and use the merger as a strategy to achieve these goals.
Know yourself and know your counterpart.
The role of the CEO in prompting discussions about merger can be critical, especially when the CEO position is in transition.
Boards/board chairs have to be merger advocates for mergers to success as a general rule.
Staff involvement is vital to the success of a merger and certainly to post-merger integration. Leaders must pay attention to organizational culture for the merger to succeed.
Most successful mergers rely on outside experts.
They may include attorneys, accountants, merger facilitators and others.
As a resounding takeaway, participants strongly encouraged merger participants to do their homework.

Download the Nonprofit Mergers 2021 Executive Briefing Presentation PDF HERE

About the Authors

BOB LIPPS, ATTORNEY AND CPA
Bob Lipps is Co-Founder and Principal Advisor at The Global Center for Nonprofit Excellence® and Co-Inventor of OpX360®. Bob serves on the boards of CCM and SIM. His previous roles include Managing Partner of Ten Talents Partners, Executive Director and Practice Leader of Lockton Insurance Brokers, Chairman of Stewardship Insurance Ltd., and General Counsel, CFO and Board Member for Wycliffe Bible Translators. Bob holds degrees from Arizona State University and Texas A&M University School of Law and is a member of the TX and FL Bars and the TX State Board of Public Accountancy.

MARC STEIN, MBA
Marc Stein is Co-Founder and Principal Advisor at The Global Center for Nonprofit Excellence® and Co-Inventor of OpX360®. His previous roles include Vice President and Executive Team Member of Joni and Friends International Disability Ministry, President of Gospel Light Worldwide, and National Director of the International Bible League and various other roles within the professional services arena. Marc holds degrees from California Coast University and is the author of Referral Rainmaking, How to Build Your Business Through Professional and Client Referrals. He currently serves on two boards.

About THE GLOBAL CENTER FOR NONPROFIT EXCELLENCE

The Global Center for Nonprofit Excellence® is an orchestrated network helping nonprofits, funders and industry experts work better together for greater impact through increased operational effectiveness and strategic introductions where:

We Make Nonprofits Better.
Nonprofits can know their operational levels and the three most important things to do next; Funders can gain greater confidence in nonprofits and the confidence to give more;
and Industry Experts can have a dynamic, focused connection to better serve both nonprofits and funders.

About OPX360®

By combining nonprofit best practices and the simple use of artificial intelligence, you can now measure 60 operational practices in all six areas of nonprofit operations and know the three most important things that you can do to improve your operational competency fast in each of those areas.

Any of the OpX360® assessments can be taken individually or together, depending on the needs of your organization.

HOW I T 'S BUIL T

Statements are grouped into sets of related Best Practice statements called Key Elements and each individual statement is categorized into one of three Competency Levels.

Those levels of competency are:

Level 1: Core operational practices necessary to perform effectively.
Level 2: Sophisticated practices that enhance overall performance.
Level 3: Leading edge practices that enable an organization to deliver the highest level of operational performance.