- Really, really want it. Too many nonprofit mergers fail because the nonprofits do not want the deal badly enough. The merger might make obvious sense for advancing the two nonprofits’ missions, enhancing their advocacy clout, gaining operating efficiencies, increasing donor commitment, or satisfying constituents divided by competing loyalties. But if volunteer and executive leaders of both nonprofits do not completely “buy in” to the benefits, commit to making necessary compromises, and agree to work hard to overcoming obstacles, the chances of reaching the closing are handicapped.
- Start with the best and brightest. No nonprofit merger can succeed unless the most respected leaders of both nonprofits will ultimately back it. Go for the best and brightest among the leaderships to populate the joint merger task force, not just those who favor the merger. If the deal ultimately makes sense, these leaders can be counted on to promote it even if they were originally skeptical. Many decisions will need to be made as things proceed, and there will inevitably be many compromises. Recruit those who are comfortable with decision-making and can do so calmly and objectively after reviewing the best information and recommendations available.
- No one ever learned anything while talking. In the early stages of nonprofit merger discussions, and indeed all the way up to the closing, task force representatives of each nonprofit should be listening intently to their counterparts from the other nonprofit. To be successful, the deal terms must reflect at least the most fundamental goals of both nonprofits. It can often take some time to tease those out. Likewise, challenges might be “hidden in plain sight” until they are recognized and addressed as such. More than one merger has failed because one nonprofit did not really hear the other nonprofit’s needs and concerns.
- “Culture” is important but rarely insurmountable. If you've seen one nonprofit, you’ve seen just one nonprofit. Each is unique. Nonprofit merger task forces often agonize endlessly over the differences in the “cultures” of the two organizations, like Tolstoy said in Anna Karenina about every unhappy family being unhappy in a different way. Culture absolutely needs to be addressed, so that at least each side understands what’s unique and important for the other side. But, like magic, the “cultures” of two merging nonprofits automatically become as one soon after the closing.
- There’s more than one way to combine nonprofits. The term “merger” is often used generically for any kind of combination of nonprofits. In fact, it is also a technical term describing a transaction in which one nonprofit merges into another and goes out of existence, i.e., is dissolved. That is often unattractive for the “non-surviving” organization and can be an obstacle to achieving board approval and, if required, membership approval. Usually a “consolidation” transaction can be arranged instead, in which two nonprofits combine into a new one and are themselves both dissolved in the process. There are alternatives such as a dissolution of one organization and transfer of its assets to the other. Or, short of a combination, a joint venture or federation model might work best.
- Move things along smartly. Delay can often mean defeat for a nonprofit merger. Nonprofits are universally slow to decide things in the first place. And if either nonprofit’s decision on a merger is allowed to move even slower than normal, enthusiasm will be deflated, opposition will fester, transaction costs will rise, and debates on relatively unimportant issues can end in a stalemate. It is best if both nonprofits agree early in their discussions to follow a strict timeline based on milestones to be achieved by specific deadlines.
- Settle for really good since you won’t get perfect. Every transaction involves compromises; nonprofit mergers are no different. Too often the nonprofit merger task force attempts to achieve the perfect combination of strengths—the idealized merged nonprofit. That is impossible, of course, and the very effort can be debilitating. Instead, focus on the few very important and mutually desired outcomes. If you get those right, the rest will inevitably follow.
- Forget about a divorce or escape clause. Nonprofit mergers have virtually never failed once they have gotten beyond the closings. The leaderships and executives will typically melt together far more rapidly than expected. Former naysayers will usually become believers as soon as they see that the nonprofits are “better together.” The merger task force can easily spend more time on “unwind” provisions than on “integration” provisions; the very effort can be divisive, spur suspicions and kill the deal by itself.
- Treat both sides as equals even when they’re not. Mergers of “unbalanced” nonprofits are tricky. Since no two nonprofits are identical, every pair is arguably “unbalanced.” The smaller, weaker or poorer of the two must not be made to feel subservient or it will never agree to proceed. Except in “white knight” situations, nonprofits are usually not “acquired.” Even when they are, the term “merger” can be used loosely to describe the transaction (although not in the official legal and accounting documents). One nonprofit must not be given the impression that it is being snuffed out, even when, as is appropriate, the bigger, stronger or richer of the two might end up with more board seats, more surviving programs, more retained staff, or other advantages.
- Identify the opposition and neutralize it. Those who oppose a nonprofit merger might proclaim their views loudly and openly, such as by campaigning against it. Or they might do it quietly and covertly, such as through surrogates. Opposition can come from inside (volunteer or staff leaders) or from outside (vendors or consultants). Sometimes the opposition can seem trivial and even vain. (For example, the committee Vice Chair who wants to be sure to “move up” to committee Chair.) The conscientious nonprofit merger task force will identify where the opposition is coming from, or is likely to come from, and take pains to turn it around or at least bring it to a position of neutrality.
- Focus on getting the big stuff right. Too many nonprofit merger efforts spend too much time on details. There is no need, and it can be counter-productive, to try to analyze and solve every problem and issue before the closing. Things such as committee profiles and job descriptions, transferring trademarks and contracts, and merging benefit programs can, and often must, be deferred until after the closing. And they are far better addressed by executives and consultants than by volunteers anyway. Instead focus on what the voting constituencies need and want to see settled—governance, programs, budgets, dues, name, staff, headquarters—and leave the rest until later.
- You can lead the horse to the water, but you can’t make it drink. If the proposed merger does not make sense to most constituents in both nonprofits, it cannot get approved. And no one would want it to proceed on, say, a 51% versus 49% approval by a board or a voting membership for either nonprofit. (Indeed, in some situations a two-thirds vote will be required.) There is no way to force a nonprofit merger. So, if strong and relentless powers are arrayed against the deal, it is always best to accept reality and withdraw. The “scars” of failed nonprofit mergers often last for years, but those that did not get far on the first try can sometimes be resurrected not too much later, perhaps after one or more rotations of volunteer leaders.
Jerry Jacobs is head of the Nonprofit Organizations Practice at the Pillsbury law firm in Washington. His team has advised nonprofits in over 150 nonprofit mergers and combinations. He is General Counsel to the American Society of Association Executives and the author of ASAE’s book: The Legal Guide to Nonprofit Mergers & Joint Ventures.