Amerger in the nonprofit world is no less complicated than the merger of a for-profit cor- poration, but the metrics of success are different. Nonprofit organizations structured around values and achieving a mission as opposed to a bottom line may need to think even harder
about whether a merger aligns with their goals, clients, and world view.
The dynamics of bringing donors, board members, and employees onto the same page is the
greatest challenge faced by nonprofits seeking to merge or acquire another entity. This article shares
some wisdom borne from the experience of our firm and others on how to get from pitching the
idea to the donors to successfully merging organizations. For each stage of the merger process, we
provide best practices so nonprofit organizations can be well-armed to think several steps ahead and
ultimately end at a bright future post-merger.
STAGE 1: PREMERGER NEGOTIATIONS
The premerger negotiations phase sets the stage for the
entire merger. At this point, the parties must develop the
values critical for the negotiations, agree on a means of
formalizing their desire to move forward, and assemble a
team whose task isto shepherd the merger.
The start of any merger process begins with the most
important discussion of all — developing a common val-ues-based goal that both corporations can rally around.
The importance of this cannot be overstated. “When organizations were able to identify potential mutual gains that
could be realized in the merger there was a statistically
greater likelihood that staff would integrate well into the
new organization.” 1
Memorializing a Memorandum of Understanding
Once the parties are on the same values page, they
should draft a brief document akin to a letter of intent
or memorandum of understanding, memorializing the
framework for the deal, disclosure schedules, and confidentiality requirements.
Assembling the Merger Team
At this stage, many experts recommend putting together a “dream team” to manage the merger. In addition
to board members and various stakeholders, there are
three other types of people that could be of value at
Merger consultant. The 2012 MAP for Nonprofits report cited above found in its study sample that 86% of
the mergers it studied included a merger consultant.
They were found to add value as experts, facilitate discussions, and sometimes take on highly specialized
roles such as interim executive directors. 2
Joint merger committee. The benefits of a joint
merger committee include creating a smaller deci-sion-making group, ensuring both boards have representatives, always communicating, and maximizing
technical skill already available on the boards. 3 Several articles and studies have concluded that a task force
or committee focused on the merger minimizes procedural mistakes and the escalation of tensions. It is also
worth considering adding a special staff merger team
to ensure proper staff integration and investment. 4
Lawyers. Joint defense/representation agreements are
common in this space to reduce costs; however, joint representation — much as in any other context — should be
approached with caution, especially if the law firm chosen
typically represents one of the merger entities.
STAGE 2: MERGER AGREEMENT
The strength of the merger agreement depends on the
thought that goes into its foundation. The parties should
engage all relevant stakeholders when drafting the terms
and try to preempt possible issue areas to minimize disagreements down the line.
Building Stakeholder Support
Before any serious drafting may occur, it is crucial to
begin reaching out to stakeholders and generating
buy-in. MAP for Nonprofits identifies four stakeholder
groups of particular importance: executive staff champions; board members; clients, consumers, and funders
(treated as one group of external stakeholders); and the
nonprofits’ staff members.
Executive staff champions. Studies indicate that having
internal leadership on board with the transaction has a potent effect on steering the process along. A key leader with
by Lewis Horowitz and Julia Abelev
Best Practices for Structuring Successful Nonprofit Mergers