New study investigates not-for-profit mergers as a strategy for success

March, 2017

By Clement Ngai, Paralegal 

“In 88% of the mergers, participants felt that the post-merger organisation was better off than the acquiring or acquired organisation” 

Mergers can be a powerful strategy for not-for-profit organisations in achieving growth and scaling impact. The Metropolitan Chicago Nonprofit Merger Research Project, a partnership between Mission Plus Strategy Consulting and the Chicago Foundation for Women, has conducted a unique study, exploring mergers as a strategy for achieving mission goals and increasing impact. The framing of mergers as a potential strategy for success has opened up new insights into the paths taken by organisations in reaching a successful merger.

1. Why have NFPs taken the merger route?

When considering the prospects of a merger, almost all the participants of the study referred to the opportunities for growth as a principal goal for the merger. Additionally, the study showed that almost all participants pursued greater efficiency, higher quality of services, and expansion of operations into new or different sectors.

In relation to acquisition mergers, the study demonstrated that the most successful mergers saw acquirers seeking to expand operations by pooling similar services and operations, or by trading assets, competencies and markets. Yet rather than being strategically advantageous for acquiring organisations alone, 60 per cent of cases saw the acquired organisation initiate the merger discussion. Furthermore, a significant proportion of acquired organisations sought a merger for reasons other than financial weakness. For many organisations, joining onto the financial stability of a larger and more stable organisation provided more than survival, but a potential pathway for growth.

For the Eleanor Foundation and the Chicago Foundation for Women merger, a decrease in charitable fundraising nationally for both organisations raised concerns for future fundraising and financial sustainability. Witnessing the bankruptcy of Chicago’s Hull House in 2012 further catalysed an interest in pursuing a merger. Considered a “strategic alliance” by the organisations involved, the merged organisation has since doubled in assets size since the merger. A significant expansion in the number of donors and partners to fund its projects, as well as the number of clients served, has proved the alliance to be a strong example of using a merger as a strategy for success.

2. Driven by a Common Mission

A strong mission, building trust, and clear goals, were three of the factors that emerged from the study as key to a successful merger. Paul Dulle, the former CEO of United Cerebral Palsy Chicago, describes how fear is “the biggest impediment to change and to a merger”, and that “trust is the flip side of fear”. In 80 per cent of the cases studied, a prior relationship or collaboration existed between the organisations that merged. The study reported that the cultivating of such relationships before the merger was significant in developing a relationship of trust for the merger to build upon.

The combined mission of a merged organisation can have much value, and recognising this was also found to be a significant driver in working towards a successful merger. As reported in the study, the CEO of A Child, A Home (pseudonym) advised that “If you are really clear about the mission value, it will lift you up past the things that can become obstacles.”

In the most successful mergers, a clearly understood mission was further complemented by clearly understood goals. For A Child, A Home, expanding the scale and reach of their child welfare services was the organisation’s clear goal in seeking a merger. Through the acquisition of a smaller, less efficient organisation in the foster care field, A Child, A Home was subsequently able to successfully leverage the assets of the acquired organisation for greater impact. However, it was also well demonstrated through other case studies that a merger may not always be the best solution to the needs of an organisation.

Accordingly, strategy responses to needs must be “thoughtfully crafted, fully articulated, and based on hard data.” In approximately 80 per cent of the cases, the merging parties engaged a third party consultant or facilitator. Hence for the most successful mergers, gaining a clear understanding of their sector, the market, and government policies was significant to creating a successful strategy for the merger.

3. Effective Leadership

Frequently cited within the study was the importance of CEO and board leadership in promoting discussion about mergers, but also as merger advocates. The study found that in 85 per cent of cases, the board chair or a board member from one of the organisations emerged as the chief merger advocate.

One aspect of such leadership was described as being visionaries of what the new organisation might become as a result of the merger. As put by the CEO of A Child, A Home, leadership was central in ensuring that for the original organisation, “the legacy of the organisation continues to be celebrated and remembered and recognised.”

The study cited a merger which dissolved after 18 months (the pseudonyms of Arbor Vitae and Helping Hand were given to the organisations). For the organisations, board engagement with the merger was found wanting, and little attention was given to working through differences between the organisations. Despite making sense from a market and strategic perspective, ineffective leadership throughout the merger process, along with other factors, led to the breakup of the merger.

4. Survival, Impact and Growth

In February 2017, the second Social Landscape report was released, by the UK based Charity Aid Foundation. This report, which is the UK’s biggest survey of charity chief executives, finds that the challenges facing charities in the UK are not about to get any easier, with nearly one in 5 charities fearing that they are struggling to survive. This figure increased to more than one in four among charities with an annual income less than £1 million.

Three in five charities reported having either restructured in the past 12 months, or indicated that they were intending to do so in the next 12 months. One in ten charities had plans to merge with another organisation over the next 12 months, with more than three-quarters stating that they have or will be partnering with another not-for-profit. David Crosbie, CEO of Community Council Australia, has observed that despite not having the same data, he has little doubt that Australia is experiencing similar trends within the not-for-profit sector.

The findings of the Metropolitan Chicago Nonprofit Merger Research Project are promising for organisations considering a merger. Identified as the study’s most significant finding was that in 88 per cent of the mergers, in terms of achieving organisational goals and increasing impact, not-for-profits felt that the organisation was better off after the merger.

For many in the not-for-profit sector, mergers often carry negative associations, seen as an emergency measure, rather than as a strategy to advance mission goals, improve services and expand impact. For Australian not-for-profits, neglecting to consider efficiency and modernisation measures in uncertain times for not-for-profits may prove fateful.

Metropolitan Chicago Nonprofit Merger Research Project chicagonpmergerstudy.org

Charities Aid Foundation Social Landscape Report https://www.cafonline.org/

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