Come Together: The Road to Nonprofit Merger Success
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https://bloomerang.co/resources/webinars/ Gregory Nielsen will discuss common scenarios that lend themselves to merger, identifying potential partners, and assessing collaborative possibilities.
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Come Together: The Road to Nonprofit Merger Success
- 1. © 2020© 2020 Road to Merger Success for Nonprofits ™
- 3. © 2020 OUR ROADMAP ● Spectrum of possibilities ● Legal considerations and due diligence ● Steps in the merger process ● Assessing potential partners and negotiation of essential agreements
- 4. © 2020 Nonprofit Landscape Today….
- 5. © 2020 Impact By Numbers - April 2020 ● 91% curtailed or adapted services ● 18% of staff, on average, furloughed/laid off ● 90% of orgs experienced revenue loss ● 44% anticipate further staff cuts ● 55% anticipate further service cuts Source: LaPiana & Associates
- 6. © 2020 Sustained Collaboration ● A strategy to achieve a mission or objective, not an end in itself.
- 7. © 2020 Collaboration Alliance Integrated Organization ● Coalition ● Shared space ● Joint venture ● Movement ● Fiscal sponsorship ● Parent - subsidiary ● Collective impact ● Joint programming ● Asset transfer ● Joint Advocacy ● Admin support ● Merger
- 8. © 2020 Merger Structures ● Statutory Merger ● Transfer of Assets ● Liquidating Transfer of Assets ● Consolidation ● Parent-Subsidiary Relationship
- 9. © 2020 Merger “Typical” Characteristics ● “Surviving organization” and “disappearing organization” ● Surviving organization inherits all assets, liabilities, and obligations ● Product of extensive negotiation ● Due diligence vital
- 10. © 2020 Common Nonprofit Merger Scenarios ● Financial crisis or feared crisis ● Organizations in competition ● Departure of a key leader ● Growth strategy ● Combining affiliates ● Struggle to recruit/retain Board and staff ● Funder suggestion
- 11. © 2020 Understand Your Ecosystem
- 12. © 2020 Common Benefits Sought ● Program preservation ● Heightened impact ● Reduced admin costs ● Stronger strategic positioning ● Stronger Board and staff Source: CompassPoint
- 13. © 2020 Conditions for Success ● The Bridgespan Group studied nonprofit mergers in 4 U.S. states over 11-year period. Organizations most likely to benefit are those that: ○ Compete with other nonprofits to offer similar services in the same community ○ Are "asset intensive" — dependent on skilled employees and ownership of large facilities (such as schools) ○ Are bound by regulations that dictate how services are reimbursed, staff members are certified and facilities are licensed Source: Bridgespan
- 14. © 2020 Merger Myths ● Mergers save money ● There are too many nonprofits ● “Merger of equals” ● The all-encompassing merger agreement ● The whole is greater than sum of its parts Source: CompassPoint
- 15. © 2020 Merger Costs ● Opportunity cost ● Infrastructure needs ● Heightened salary Source: CompassPoint
- 16. © 2020 #DidYouKnow ● According to Harvard Business Review, 70% of corporate mergers fail due to some combination of culture, ambition, and strategy getting misaligned.
- 17. © 2020 Lanes of Success ● Board members ● CEOs ● Funders
- 18. © 2020 Merger Process ● The opening of the door… ● Digging around ● Negotiating the agreement ● Legal recognition ● “Go!” ● Integration and evaluation
- 19. © 2020 1. Opening the Door ● Past collaborative experiences ● Board-CEO relationship ● One voice ● Current condition ● Risk tolerance ● Time
- 20. © 2020 Identifying Partners ● Past and present partners ● Complementary programs/services ● Geographically desirable ● Successful mergers move at the speed of trust
- 21. © 2020 2. Digging Around ● Formation of a merger committee ● Confidentiality agreement ● Exchange of information ● Considerations of culture and change ● Intent-to-merge resolution
- 22. © 2020 There is Value in Exploration... ● Self awareness ● Unearthing other partnership opportunities ● Team growth
- 23. © 2020 Due Diligence ● Governance and values ● Licenses and accredidation ● Tax ● Real/Physical/Intellectual Property ● Financials ● Contracts ● HR ● Risk
- 24. © 2020 5 Key Questions to Answer ● Will merger result in better quality, greater efficiency, or more comprehensive service? ● How do 2 orgs complement one another? ● How are philosophies and cultures similar/different? ● Will merged org be more sustainable? ● What does cost structure look like short and long term?
- 25. © 2020 Visible vs. Invisible in Due Diligence Visible ● Systems ● Technology ● Policies/procedures ● Programs ● Resources Invisible ● Leadership style ● Decisionmaking ● Inclusion ● Trust ● Values ● Conflict
- 26. © 2020 Intent to Merge Resolution ● Promise of good faith ● Ability to inform stakeholders ● Exclusivity in discussions ● Merger fundraising is group effort ● Delegation of authority to merger committee
- 27. © 2020 Key Tip!
- 28. © 2020 3. Negotiating the Agreement ● Timeline ● Mission and Vision ● Board of Directors ● CEO ● Budget ● Name and Location ● Corporate structure ● Programs Source: CompassPoint
- 29. © 2020 Legal Review - Issues to Review ● Sufficiency of the agreement ● Collective bargaining ● Antitrust ● Property
- 30. © 2020 Merger Ratification ● Merger committees make recommendation to the Board ● Proposed agreement presented ● Merger committees disband ● Boards vote ● “Agreement in principle”
- 31. © 2020 4. Legal Recognition ● Prepare the documents in accordance with state law ● Technical merger vs. Statutory merger
- 32. © 2020 5. “Go” Time ● Execute on the plan ● Intentionally determine publicity level
- 33. © 2020 6. Integration and Evaluation ● Integration team ● Infrastructure and technology ● Staff processes ● Policies and procedures ● Culture and habits ● Board dynamics
- 34. © 2020 10 Key Areas of Integration ● Board ● Management ● Finance ● Program ● Staff ● HR ● Fundraising ● Communication ● Technology ● Facilities Source: LaPiana & Associates
- 35. © 2020 Organization Culture ● Celebrate old stories and create new together ● Consistently communicate cultural values ● Discuss traditions ● Define success together ● Establish pit stops and guardrails
- 36. © 2020 Don’t Ignore the Elephants
- 37. © 2020 What are Your “EIs?”
- 38. © 2020 Summary ● Sustained collaboration is a spectrum ● Understand the ecosystem of both orgs ● Avoid the merger myth traps ● 6 step merger process ● The differentiator: organizational culture ● Know your EIs
- 39. © 2020 THANK YOU! The information contained in this presentation has been prepared by Gregory Nielsen and is not intended to constitute legal advice. Gregory Nielsen has used reasonable efforts in collecting, preparing, and providing this information, but does not guarantee its accuracy, completeness, adequacy, or currency. The publication and distribution of this presentation are not intended to create, and receipt does not constitute, an attorney-client relationship. Reproduction of this presentation is expressly prohibited. Gregory Nielsen gregory@nielsenconsults.com www.nielsenconsults.com Twitter: @gregory_nielsen Phone: (502) 472-5367
Editor's Notes
- Statutory Merger: Target nonprofit dissolves into the surviving nonprofit Target nonprofit’s assets automatically transfer to surviving nonprofit by operation of law Pros: simple, just file certificate of merger Cons: Surviving nonprofit assumes all liabilities, known and unknown Transfer of Assets: Target nonprofit uses its assets to pay known liabilities, then transfers remainder to survivng nonprofit Target nonprofit remains in existence Pros: no liability for unknown liabilities absent fraud; can continue to receive gifts Cons: time consuming and costly; 2 orgs
- Particularly if the parties were not sufficiently prepared, a merger can result in many potentially unanticipated consequences such as real property transfer taxes, breaches of contracts (e.g., for failure to notify the other party of the merger), and loss of future planned gifts.
- By pooling their resources, three geographically contiguous hospice providers—JourneyCare, Midwest, and Horizon—enabled the merged entity, also called JourneyCare, to expand its collective customer impact and to gain a competitive advantage in an industry where for-profit providers had become significant players. The Affordable Care Act (ACA) of 2010, which completely transformed the health care field, was the primary driver for this merger. Another classic case of organizations combining to leverage their resources involved Big Brothers Big Sisters of Metro Chicago. This effort, which involved three geographic mergers of youth mentoring organizations across Northern Illinois and Indiana, turned a largely insolvent operation serving 100 or so at-risk children in 2005, into a $ 4 million sustainable enterprise promoting high quality services for 1800 at-risk children in 2015.
- Program preservation Do we want the Merger Agreement to state that our program will continue for a certain length of time? Or that an office in our county will be maintained? What might be the impacts of these requests? Are there any non-negotiables for us in terms of program or location? Heightened Impact How many of our constituents currently work with both organizations? What do they value about each organization? If we merge, will we serve the same people in different ways, new people in new ways? Through surveys, interviews, focus groups or simply listening, can we find out how best to meet the needs and desires of our constituents? Reduced Admin Costs: What accounting systems, human resources systems, computers, networks and other systems will the new merged organization need? Will new positions be necessary, such as Deputy Director, Development Director, CFO, Supervising Clinician, Receptionist or others? What specific costs will there be (e.g. severance pay or bringing health and other benefits into line)? What financial reserves will the organization need after the merger to give it some slack as management discovers how best to organize the work? Overall, are reduced total administrative costs a realistic benefit to achieve through a merger? Stronger strategic positioning: How will funders, collaborators and partners react to hearing about the merger? What funders do the organizations have in common and will they continue to fund at the same level? Are there new opportunities for funding or partnership that the merged organization could pursue?
- Respondents from 95 percent of the mergers agreed that if not for one of the executive directors, the merger would never have happened.
- Interviews Surveys Focus groups
- Interviews Surveys Focus groups
- Timeline: Which matters have to be decided before the merger decision? When does what happen? For instance, if the merged organization will adopt a new name, does it need to be agreed upon prior to the legal enactment of the merger? Mission and vision: Which mission and vision will the merged organization follow? Will new mission and vision statements be created? Who will participate in their creation and their adoption? Board of Directors: Who will be the board chair? Who will be on the board? Will new bylaws need to be created or will the merged nonprofit adopt the bylaws of one of the existing organizations? Executive leadership: Who will be the lead staff person? Will the other ED remain with the merged organization and if so, in what capacity and for how long? Budget: Which programs will the merged organization maintain? Which personnel are necessary to conduct those programs and ensure the smooth operation of the nonprofit? What revenue can the merged organization expect to retain and attract? Organization name: Which name will the merged organization use? Will a new name be selected? Corporate structure: Will the two (or more) corporations merge? Will one dissolve and transfer its assets to the other? If so, which will dissolve? Programs: Are there any agreements about program maintenance or closure that need to be decided prior to the merger? Location: Where will headquarters be housed? Will more than one location remain open under the merged organization?
- Improved image, reputation, or public support Improved, expanded, or preserved services Increased quality of operations Increased efficiency of operations Improved financial stability Development of a positive organizational culture