By Todd Cohen
Nonprofit mergers, a strategy funders have been pushing, can backfire and should be pursued only after weighing their likely benefits and risks, as well as alternative options.
That is the message of an article, Merging Wisely, published in the Stanford Social Innovation Review and reported today by the Philanthropy Journal.
Mergers to combine the infrastructures of nonprofits can make sense because the duplication of infrastructure services for nonprofits is a big problem, the article says.
But nonprofits looking to produce revenue or cost savings from mergers should look twice, it says, because “transactional and integration costs” from the merger actually could mean additional costs in the short term.
And mergers may not even result in big cost savings for the long term, with the cost of combining audits, insurance, staffs and boards possibly even exceeding the savings.
Mergers can produce benefits in areas like fundraising and leadership.
Nonprofits also should look carefully at alternatives to mergers, such as combining only the back-office functions of nonprofits, or only some of their programs, or both.
Strategic alliances and informal collaboration also are options.
The limping economy has put enormous pressure on nonprofits to cut spending and find efficiencies through working more closely with other organizations.
Mergers may seem like a magic bullet but can create more problems than they solve, and they also can create upheaval within the combined organization through the collision of widely differing corporate cultures.
For nonprofits thinking about mergers, and for funders pushing nonprofits to merge, the challenge is to think hard about what tying the knot actually would mean, and to shop around for alternative ways to work smarter by working with new partners.