Mass. Nonprofit Merger Activity Remains Flat and Challenging
February 21, 2014 Merger activity among Massachusetts nonprofits has remained essentially flat since 2001, underscoring the reality that creating a successful merger remains difficult, even for organizations that have done it before, a new study has found.
While the number of nonprofit mergers in Massachusetts increased from 250 in the 2001-2006 period to 280 over the following six years, the rate of mergers remained a constant 0.75% during those 12 years, reflecting the growing number of nonprofits in the state, according to The Bridgespan Group
, a Boston-based nonprofit advisor to nonprofits that conducted the analysis.
Despite growing support for nonprofit mergers, promising combinations often stumble over three emotionally charged issues: getting the boards aligned, finding roles for senior staff, and blending the brands. Creating a due diligence process that overcomes these hurdles is critical in order to translate increasing skill to merge into will to merge, said Katie Smith Milway, a Bridgespan partner and co-author of the report.
Massachusetts mergers between 2001 and 2012 were most common among organizations in the child and family services field, the study found.
In addition, according to the study, large nonprofits, increasingly, are taking over smaller nonprofits, as the number of mergers between large and small nonprofits doubled in the last years. Mergers between larger and medium nonprofits also increased 50%.
In 2008, about midway through the period Bridgespan studied, The Boston Foundation issued a major report that, in part, called for fewer standalone nonprofits in Massachusetts and more mergers. For more, click here
The new Bridgespan report notes that while nonprofit mergers and acquisitions can often deliver more and better services at lower cost, the highly emotional issues of boards, senior staff, and brand can block such deals.
To keep potential mergers on track, Bridgespan advises:
- Create a structured planning process, with explicit roles for senior staff and the board to ensure that your due diligence is actually diligent. This may also mean including your board chair as the CEOs thought partner and principal conduit to the board.
- Prioritize transparency and ground conversations in cold, hard facts so the board and the staff learn together.
- Keep a close eye on the financials, asking questions and sharing the good, the bad, and the ugly with the board.
- Dont be pushed into hasty action by a big funder or an artificial deadline. It takes time to make a good merger, and time to put the brakes on a bad one before its too late.
- Identify the toughest issues, including the roles of senior staff and board members, brand identities, and culture. Dont sweep them under the rug, work through them.
- Planning should take into account potential structures for staff as well as roles and committees for combined boards.
- Get outside help, not just on the financial questions, but for softer subjects like organizational structure and branding. Skilled facilitators can add real value. Sometimes funders will help pay for this outside support, even if they dont have an explicit merger support program.
The report that short of merging, nonprofits can align with each other to create greater impact by sharing best practices and services, forming coalitions, establishing formal partnerships, and creating joint ventures.
The full report is available by clicking here