Nonprofit Mergers: Tips & Traps

As we have discussed in previous posts on the motivations and the risks associated with nonprofit mergers, nonprofit leaders should enter into any merger discussions with sufficient knowledge and understanding to make sound decisions. In this post, we identify 8 tips and 8 traps of nonprofit mergers.

8 Tips

Check the organization’s own readiness, including a review of its mission, values, goals, success factors, strengths, weaknesses, financials, compliance, leadership, staff, and culture.
Consider candidates for a merger or other collaboration and how well the organization knows these candidates.
Assess and compare various collaboration options and an asset transfer before committing to a merger.
Begin discussions between executives of each organization and follow with discussions between board leaders.
Engage a knowledgeable attorney and consultant early in the process to help identify and assess the options and guide the organization through the merger so all important considerations are made and all critical steps are taken.
Appoint key staff and board members to a transition team with a critical role in planning the merger and post-merger integration and building trust between the organizations.
Plan and exercise reasonable due diligence, adapting throughout the process.
Draft appropriate agreements to execute the merger with reasonable protections and sufficient detail to assure mutual understandings are captured.

8 Traps

Rush a merger without exercising sufficient due diligence – the investigation, review, and exercise of care that a reasonable organization and board are normally expected to take before entering into a merger.
Exclude staff in the decision-making process.
Ignore the cultural issues in any key aspect of the governance and operations of the organization.
Fail to maintain confidentiality when it is expected (which must be balanced with the need for an inclusively made decision).
Neglect to carefully assess the impact on, and perception of, key stakeholders, including employees (some of whom may not be employed post-merger or who may have a very different role), beneficiaries/clients, and donors/funders (which may necessitate a new acquisition and retention plan).
Underestimate the financial and other costs of a merger (any cost-efficiencies may come significantly later than originally anticipated); Underinvest in the communications and marketing strategy related to the merger, including the initial announcement, responses to criticisms, maintenance of legacies, and protection of old names (e.g., in case a bequest is made out to an organization with one of those old names).
Fail to get the required signatories to sign the merger agreement (e.g., for California nonprofit public benefit corporations, the signatories must be: (a) the chairman of its board, president or a vice president; and (b) the secretary of an assistant secretary.
Overlook the challenges, difficulties, demands, and costs of post-merger integration, particularly with respect to employee engagement and systems integration.