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Come Together: The Road to Nonprofit Merger Success

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Gregory Nielsen will discuss common scenarios that lend themselves to merger, identifying potential partners, and assessing collaborative possibilities.

Published in: Government & Nonprofit
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Come Together: The Road to Nonprofit Merger Success

  1. 1. © 2020© 2020 Road to Merger Success for Nonprofits ™
  2. 2. © 2020 Introduction www.nielsenconsults.com
  3. 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. 4. © 2020 Nonprofit Landscape Today….
  5. 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. 6. © 2020 Sustained Collaboration ● A strategy to achieve a mission or objective, not an end in itself.
  7. 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. 8. © 2020 Merger Structures ● Statutory Merger ● Transfer of Assets ● Liquidating Transfer of Assets ● Consolidation ● Parent-Subsidiary Relationship
  9. 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. 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. 11. © 2020 Understand Your Ecosystem
  12. 12. © 2020 Common Benefits Sought ● Program preservation ● Heightened impact ● Reduced admin costs ● Stronger strategic positioning ● Stronger Board and staff Source: CompassPoint
  13. 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. 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. 15. © 2020 Merger Costs ● Opportunity cost ● Infrastructure needs ● Heightened salary Source: CompassPoint
  16. 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. 17. © 2020 Lanes of Success ● Board members ● CEOs ● Funders
  18. 18. © 2020 Merger Process ● The opening of the door… ● Digging around ● Negotiating the agreement ● Legal recognition ● “Go!” ● Integration and evaluation
  19. 19. © 2020 1. Opening the Door ● Past collaborative experiences ● Board-CEO relationship ● One voice ● Current condition ● Risk tolerance ● Time
  20. 20. © 2020 Identifying Partners ● Past and present partners ● Complementary programs/services ● Geographically desirable ● Successful mergers move at the speed of trust
  21. 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. 22. © 2020 There is Value in Exploration... ● Self awareness ● Unearthing other partnership opportunities ● Team growth
  23. 23. © 2020 Due Diligence ● Governance and values ● Licenses and accredidation ● Tax ● Real/Physical/Intellectual Property ● Financials ● Contracts ● HR ● Risk
  24. 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. 25. © 2020 Visible vs. Invisible in Due Diligence Visible ● Systems ● Technology ● Policies/procedures ● Programs ● Resources Invisible ● Leadership style ● Decisionmaking ● Inclusion ● Trust ● Values ● Conflict
  26. 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. 27. © 2020 Key Tip!
  28. 28. © 2020 3. Negotiating the Agreement ● Timeline ● Mission and Vision ● Board of Directors ● CEO ● Budget ● Name and Location ● Corporate structure ● Programs Source: CompassPoint
  29. 29. © 2020 Legal Review - Issues to Review ● Sufficiency of the agreement ● Collective bargaining ● Antitrust ● Property
  30. 30. © 2020 Merger Ratification ● Merger committees make recommendation to the Board ● Proposed agreement presented ● Merger committees disband ● Boards vote ● “Agreement in principle”
  31. 31. © 2020 4. Legal Recognition ● Prepare the documents in accordance with state law ● Technical merger vs. Statutory merger
  32. 32. © 2020 5. “Go” Time ● Execute on the plan ● Intentionally determine publicity level
  33. 33. © 2020 6. Integration and Evaluation ● Integration team ● Infrastructure and technology ● Staff processes ● Policies and procedures ● Culture and habits ● Board dynamics
  34. 34. © 2020 10 Key Areas of Integration ● Board ● Management ● Finance ● Program ● Staff ● HR ● Fundraising ● Communication ● Technology ● Facilities Source: LaPiana & Associates
  35. 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. 36. © 2020 Don’t Ignore the Elephants
  37. 37. © 2020 What are Your “EIs?”
  38. 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. 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

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