The Ultimate Blend: Consolidation & Merger

Recently, Ephraim Gopin discussed the difficult decision of a nonprofit shut down and the alternatives to halting services. His post got me thinking about how resistent charities can be to change, even in face of dire financial situations.  Businesses merge, divide, fall apart, and rebuild with an eerie sense of regularity, but nonprofits seem to stick to their guns, even if that means providing services just as they did during the Civil War.  By the time a charity has to close its doors, several opportunities to merge and consolidate are missed, and that leaves ones less group of passionate folks out there helping people.

In most circumstances, unless an organization lacks the funds to continue operations, nonprofit executives are hesitant consider consolidation, merger, or transfer of services.  In 2009, I performed research surrounding duplication of services for the Clinton Global Initiative University, and what I found was both striking and frustrating.  In a town with approx. 6,000 diagnosed or affected by AIDS, more than twenty charities, medical clinics, and treatment centers offered services to this demographic.  Competing in the same donor pool, these organizations maintained a 30% rate of duplication in the services they provided.  It seemed to me like these groups weren’t collaborating with one another, instead stretching donors too thin with solicitations from multiple nonprofits supporting the same cause. 

My question was then and continues to be, “Why not think about merging or consolidating as a way to better serve rather than as a way out of a financial blackhole?”

When to Consider Consolidation or Merging

The entire premise behind a charity is to provide services that meet a specific community need.  We shouldn’t be opening food banks beside soup kitchens and churches already feeding the same community unless a need isn't being met.  Overlaps in provision of service create unnecessary expenditures in marketing the distinction between multiple organizations, production of materials, training, staffing, and much more.  Often consolidation and merging is seen as a last ditch effort for nonprofit survival – when funding an grants fall short, combing efforts with a similar organization can keep a nonprofit’s head above water.  The unfortunate circumstances often involve waiting until the well is too dry to even merge, and layoffs or shut down end up as the only option.  Merging or consolidating should be seen as a partnership rather than a last ditch takeover.  Realizing the benefits of merger early on can allow for rebranding, marketing, and expansion of services for both organizations. Hannah Breeze Gregory wrote a brief article for the Philanthropy Journal on merging, stressing that consolidation allows nonprofits to thrive.

What happens to the Board of Directors?

There are several ways the board of directors will transition after a consolidation/nonprofit merger.  The Nonprofit Quarterly recently released an article about two York, Pennsylvania organizations whose merger maintained the entire board of directors, but altered their roles and structure. The first point to make when it comes to the board of any organization is that done correctly, boards are the most valuable asset a charity has.  Speaking in the most general terms, nonprofit board members are affluent, connected individuals who are volunteering their time and effort because they are passionate about the cause . Boards are links to in-kind partnerships, future donor relationships, and a way to build a stronger volunteer base: from young professionals organizations to high school volunteer clubs, board members are able to parlay their skills into a variety of assets, so retaining as many as possible is crucial to the success of the merged nonprofit.

Retaining Donor Confidence

When charities change or consolidate, it can intimidate donors, who identify sudden change with a failed ability to manage resources.  Keeping donors informed and retaining their confidence throughout the merging process is the best way to ensure their continued support.  Focus on the positives and justify the merger not as an economic decision, but as a streamlining and enhancing of services. Technology has stepped in to do the legwork – never underestimate blogging, tweeting, and the ever-present nonprofit newsletter to educate donors on new staff members, new leadership, and how great the new programs are.  At the same time, putting a few dollars aside to keep things the same for a while won’t hurt.  Pay to keep mail forwarding activated or keep the donation post office box open for longer than you’d expect, that way even annual donors have the opportunity to learn about the changes before sending in their holiday contribution.  Even little additions like writing special messages beside the signature on donation request direct mailings can impress a wavering donor. 

Does this Work?

Yes.  In Austin, two nonprofits serving the elderly population merged and created a new organization.  A huge portion of the staff stayed on board and the new organization was marketed as a new entity with a wide array of experience and services.  I’ve also read about some large national organizations absorbing smaller nonprofits and adopting them as affiliates.  Another key point to touch on is that two organizations don't need to merge entirely to be effective. Collaborating on one area of service can still cut costs, allowing that particular service to be more effectively marketed or staffed.  Sharing the burden instead of duplicating the expenses can truly get to the heart of what charities are trying to accomplish.  I like to think of consolidation as blending: taking two great things, mixing them together and working out all of the tough bits to end up with something smooth.

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