…there are two main approaches in the not-for-profit sector to mergers. The most common is ‘desperation’ where financial insecurity and the core need to maintain services pushes organisations towards reactive mergers, but there are also cases where merger is motivated by the opportunity to ‘create something bigger than the sum of the parts,’ pool resources and amplify impact. (The Good Merger Index 2018/19)
The Good Merger Index 2018/19 suggests that the non-profit sector is generally fearful of mergers and that a minority of charity Chief Executives regard merger as a strategic tool to deliver more impact. It is good to see that the Index highlights the emotional and cultural issues in relation to merger, too often I have seen these ignored or downplayed.
Logic will take you so far, but you need to get over the emotional barriers. Vicky Browning
What do you think of when you hear the word merger? Are you first thoughts positive or negative? Chances are you will have a view one way or the other. Some of this may be informed by a particular perception of merger. NPC has shown in its research that merger can be more nuanced than we might first think, and that there are different flavours dependent on your purpose and the life stage of your organisation.
In the non-profit sector there are a number of reasons why mergers don’t always succeed:
- Not knowing when and how to think about mergers and acquisitions: It is not usual in the sector for people to be thinking about merger as a strategic development tool. This tends to mean organisations come to it late or for the wrong reasons
- Lack of resources to fund appropriate due diligence and post-merger implementation: as Susan highlighted in her post last week this is a process that needs appropriate investment
- A tendency to regard them as the option of last resort to solve financial or management problems: for all sorts of understandable reasons mergers can be regarded with significant scepticism but they can be a positive mechanism for growth
- No infrastructure for exploring merger options: the sector doesn’t have a ‘dating agency’ so to speak that can help organisations explore possible options, which means it is often dependent on existing networks or funder suggestions
- Enforced externally: external forces such as funding interventions can lead organisations to a position where they feel they are being forced together, this seldom has a positive outcome
Aside from the obvious needs for clarity of purpose and a realistic plan a merger process needs to address four significant areas:
Governance
It is essential the governing bodies are involved at every stage and that they have access to the necessary information and support. It may reveal skills gaps on the boards and/or tensions between its members. In some organisations this may feel like the boundaries between the Executive team and the governing body are shifting. It is important that there is an openness to the process. On a practical note a proposed merger can be emotionally demanding and very time consuming.
On several occasions I have seen governing bodies go through the majority of the process and get to the point where assets are to be transferred and organisational names changed only to decide they were not going to proceed.
Culture
Merger involves the coming together of separate entities that will have established their own cultures and ways of doing things. Views vary on whether it is best to try and integrate existing cultures or to try and create something new. It is likely to depend on individual circumstances. The worst thing is to ignore it, I have met with people from merged organisations who some time later were still talking about which of the original organisations they were from. Those who have managed mergers talk about the integration phase often taking at least 12 months.
People
Merger is a significant change process and as such there is a clear need to attend to the people involved. This will encompass everything from communications to training and future leadership. Even where there is commitment to the process it is likely to be stressful and generate anxiety. Assumptions will be tested, mind sets will need to change, there may be tensions at senior levels, and some may withdraw psychologically. You can’t always predict how people will respond but communicating well, being open and honest and investing in support time and resources will help.
Identity
Recognising that the identities of at least one if not all of the existing organisations are likely to disappear is hard. As is negotiating the new identity. The worst example I have come across of this is where staff are left on the day of launching the new organisation not knowing how they should answer the phone.
We are not advocating for merger one way or the other, but it is likely to an option for some as we continue to navigate these choppy waters. We are being open in setting out some of the challenges of mergers, although it is important to understand there can be benefits in terms of development and increasing impact. It doesn’t have to be an act of desperation.
Dawn & Susan