Nonprofits urged to be sure merging is right move

By Todd Cohen

[Note: This was written for Triangle Community Foundation. I am working with the Foundation as senior communications adviser.]

In the nearly five years since the economy fell apart, nonprofits have faced relentless strain on the operations, rising demand for services, and tougher scrutiny from individual donors and institutional funders.

Nonprofits also have faced growing pressure, particularly from donors and funders concerned about duplication of services in the community, to consider collaborating with other organizations, or even merging with them.

Partnership strategies have seen some early successes, but they also have sparked cautionary warnings from experts about the need to think carefully before collaborating or merging.

Nonprofits should make sure they are pursuing a partnership strategy for the right reasons and that, in developing a partnership, they are addressing critical issues that can mean the difference between success and failure.

“For the last few years, there’s been a lot of talk about mergers, with encouragement from the funding community,” says Sally Edwards, president and CEO at Marbles Kids Museum in Raleigh, an organization that was created in September 2007 through the merger of Exploris museum and Playspace.

“People jump to a merger,” she says, “when they should be asking, do they need to collaborate?”

Thinking before merging

Last year, The Women’s Center and the Family Violence Prevention Center, which had been formed in 1978 and 2000, respectively, merged to form Compass Center for Women and Families in Chapel Hill.

The merger was the result of eight months of detailed talks, including meetings nearly every week of members of the two agencies’ staffs and boards.

And while it may generate some savings, the merger was designed to improve and expand services to clients and prospective clients.

Yet preparing for the merger consumed vast amounts of time and resources at both agencies, and has resulted in continuing costs and operating strain the two agencies did not fully anticipate, says Anne Gerhardt, who is executive director of Compass Center and was executive director of The Women’s Center.

Gerhardt, who estimates she spent at least half her time on the merger in the year leading up to it, says the two agencies went through a comprehensive and highly structured “due diligence” process that examined every aspect of their organizations, operations and programs.

Preparing for the merger already has cost $100,000 and likely will cost another $100,000, an investment that has been compounded by the fact that the two agencies suspended their fund development efforts for a year to prepare for the merger.

“We’ve lost some traction with donors,” Gerhardt says. “Other donors have been very supportive.”

Deepening that lost connection with donors, she says, is the fact that many donors can be reluctant to provide the operating support that mergers require, such as a new website and new brochures and the integration of information technology systems, phone systems, donor databases and client databases.

While some donors were willing to pay for consultants to help make the merger happen, she says, the merger generated real needs that required funding.

“We still have two offices and two phone systems,” she says. “We’re still on two computer systems. We need somebody who can help us there.”

The merged agency will post an operating deficit of roughly $20,000 on a budget of $666,000 for the fiscal year that ends June 30, and expects to post deficits in the next two fiscal years as well.

And the merger has placed continuing strain on the combined staff of 12 people.

In the past year, Gerhardt says, she has hired six people to replace staff members who left, and the organization still has two open positions.

“Our agencies were operating very efficiently prior to the merger,” she says. “We were not duplicating services.”

The merger and its continuing costs, she says, have placed “enormous strain on the staff.”

Combining cultures

Edwards at Marbles Kids Museum says Exploris and Playspace merged after community leaders and a consultant who conducted a feasibility study recommended the merger but advised against launching a possible capital campaign to raise $12 million to create new exhibits.

“Having the opportunity to create a new museum together was one of the things that made the merger successful,” Edwards says. “We were able to create a new culture rather than trying to blend the cultures of two organizations. It turned into a community project. We had a chance for a do-over in this space.”

In addition to technical details about programs, operations and finances, key issues the two organizations addressed in making the merger work focused on “people, emotions, cultures,” she says.

“You need to start thinking about the people just as soon as you start thinking about technical aspects,” she says.

Nonprofits considering a merger also should “be prepared for the unexpected” and build enough time into the planning process to avoid stress or rushing to decisions, Edwards says.

“Make sure you really are doing an assessment that will expose any kinds of risks, and build in contingencies for any risks that may be exposed,” she says. “Try to spend enough time and not be stressed. Eliminate surprises but try to figure out what they might be.”

Most important, she says, is the need to develop a clear statement of the long-term impact a proposed merger aspires to create, rather than merging simply to solve an immediate problem.

“You want a longitudinal vision for why you’re merging,” she says.

Staying objective

Trudy Smith, executive director of Executive Service Corps of the Triangle in Durham, says nonprofits considering a merger should get a third party involved in helping them assess the possible benefits and disadvantages, and navigate the process.

“It’s very hard to be objective because there’s so much emotion,” she says. “Your dealing with peoples’ babies.”

Key issues possible merger partners should address, she says, include who will lead the staff after the merger; how to combine boards; what to name the merged organization; how to blend the two organizations’ respective missions and organizational cultures; how to consolidate programs and operations; and whether there are any “secrets”.

“What are their finances,” she says. “What haven’t they told you.”

The value of a third party is to “bring up things people don’t necessarily think of when headed down the road to merge,” says Smith, whose organization has provided assistance for a handful of mergers in the Triangle.

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