Some nonprofit organizations facing financial troubles or wishing to enhance the effects of their efforts may find their solution in a merger. According to the New York Times (November 11, 2007), the merging of the Hands on Network and Points of Light Foundation resulted in a combined budget of over $30 million and 370 affiliates working with more than 80 percent of the volunteers in America each year. Michelle Nunn, who presided over the merger and formerly headed the Hands on Network, explained, “[w]e both could have continued along the route we were on, growing incrementally, but I believe neither of us would have achieved the kind of exponential change we wanted. I think that’s true of the nonprofit world in general; very few organizations have the scale to tackle the big problems we are all trying to address.”

As Marilyn Dickey of the Chronicle of Philanthropy reported (June 10, 2002), nonprofit organizations merge for a variety of reasons and under different circumstances than the for profit mergers that usually occur due to stockholder or Wall Street pressures. Financially, merged organizations may attract more grants than would be possible individually. Furthermore, mergers can provide extra manpower to understaffed organizations, helping them to be more efficient. Thomas A. McLaughlin, senior manager of management-advisory services at Grant Thornton, debunks the common assumption that nonprofit mergers require massive layoffs, stating that “most charities are short-staffed, and the merger of two or more organizations doesn’t reduce the need for employees except at the very highest levels.” Additionally, by merging with an organization with similar goals, nonprofits can cut costs, increase their reach, and reduce the redundancy of services.

This is not to say there are no potential negative aspects to nonprofit mergers. Peter J. Solomon, who sits on the board of several nonprofits and whose investment firm has helped corporate mergers, explained to the New York Times one difficult tension specific to nonprofit mergers: “You have all of the natural tensions you have in a for-profit merger — which leader loses his job, what name to give the new company, whose employees lose their jobs — but none of the incentives, which is to say nothing you can reduce to cold, hard cash,” and this can cause reluctance to merge since “[y]ou cannot tell the C.E.O. or board members of a nonprofit board that if you merge, at least your options will be cashed out and you’ll walk away with $300 million.” Additionally, an uncontrolled rumor mill about the merger can alienate loyal donors or cause staff members to become concerned about their job security and lower morale. Thus, organizations must make a diligent effort in “[g]iving workers consistent information, getting their feedback, and taking steps to see that people are treated fairly throughout the process.”

Nonprofit mergers require more time to plan and must be done so carefully. As Bill Coy, human-resources consultant for La Piana Associates, in Oakland, California, notes to the Chronicle of Philanthropy, "Even if you’ve negotiated a perfect merger, the implementation and integration of that merger is a critical process. Mergers might look elegant on paper, but the reason they succeed or fail is in the people issues." There must be a dialogue between the merging organizations long before the final merge to discuss important issues such as a shared vision, the name of the merged organization, salaries and titles, administrative systems, and organizational cultures. Nonprofit organizations face the extra the hurdle that unlike the few people who decide a for profit merger, nonprofit merger negotiations require any and all stakeholders. Additionally, the organizations may want to take even further steps to ensure a successful transition such as getting to know their new colleagues, sharing a building, or hosting a retreat.

To read Marilyn Dickey’s article, click here.

To read about the Hands on Network and Points of Light Foundation merger, click here.

For more information on nonprofit mergers, please view David La Piana’s article, “Nonprofit Mergers: Is your organization ready for the road”.

– Emily Chan