Getting Nonprofit Mergers Right
Corporate and nonprofit mergers alike must provide mutually beneficial solutions to a range of problems, albeit in different ways.
Nonprofit mergers are complex unions. They aren’t exactly consolidations or even partnerships — they are opportunities for problem-solving. Charities in the arts, local media, youth, and family services contribute significantly to our economy. They also operate on thin margins. Surviving an economic downturn has everyone looking for a lifeline, and for some, a merger might offer a way both through a recession and into a more opportune future.
While many nonprofit executives know how to build and manage boards to foster internal culture and identify and pursue strategic opportunities, most of us have little experience with mergers. What we know comes from reading about corporate mergers, where there is a significant body of research and narration — about the drama, the winners, the losers, and the swords that get picked up and put down. According to Harvard Business Review, 70% of corporate mergers fail due to some combination of culture, ambition, and strategy getting misaligned.
By contrast, nonprofit mergers happen rarely and with less fanfare. The literature available to us is primarily from industry headlines and internal press releases, which summarize protracted negotiations into a few carefully crafted bullet points of transformative hope. Generally skipped is the long, long journey that started over coffee years before, often with a simple, fundamental question: can you help us solve a problem?
Learning in Real-Time
About three years ago, I had one of those conversations, which led, over many months, to the merger of two public media organizations, PRX and PRI. I feel that this has been a highly successful merger, as evidenced by the value we are creating in our field and the resilience of our staff, especially through the early months of COVID. Despite our success, the journey was by no means seamless. There were parts of the organization that took longer to integrate than I’d originally anticipated. The integration of everyday internal business communication tools was more important than we realized and employees were rightly nervous that their productivity might slip while everything was being evaluated. In addition to success, there was stress, conflict, and uncertainty.
Any deal should start with a strong sense of what the merged organization wants to accomplish. A simple clear understanding of why the merger could have transformational impact. In our case — the disruption of public media’s status quo — was baked into both organization’s origin story. PRI had a long, accomplished history of helping bring new programming into the broadcast system, but it was struggling with digital transformation and weighed down by the costs of managing production. In contrast, PRX was blazing the digital trail on a strong growth curve but functioned like a start-up without a lot of the institutional infrastructure necessary to effectively scale, sustain, and realize new opportunities. Our combined sense of possibility was aided by the leadership of WGBH who helped facilitate and guide us. Our broad notion became a touchstone, even if we didn’t have the wordsmithing complete. This gave us the confidence to get things working operationally and circle back to strategy and execution as a unified group.
Corporate and nonprofit mergers alike must provide mutually beneficial solutions to a range of problems, albeit in different ways. They require a shift in perspective coupled with an honest assessment of the gaps in your own organization plus an ability to see the value in another’s approach.
One romantic version of mergers is that one healthy organization will save a failing one. Failing nonprofits, despite worthy missions, typically have systemic problems that mergers can accentuate. Combining nonprofits takes resilience, willingness, and strength. If you are thinking about a merger, mutual benefit should be the goal. Leaders of organizations that talk honestly about challenges in solving overlapping, chronic problems that both nonprofits face, have a better chance at addressing the right problems.
Greater Than the Parts
Our own merger brought together two competing but distinct entities. We integrated expertise in journalism, storytelling, technology, and training across a significant broadcast and podcast portfolio. Separately, PRX and PRI had a history of innovation and experimentation. Together we were able to expand our impact, reduce overlapping fees for customers, and achieve more faster.
In many ways, we were like two siblings born a generation apart, which meant there was enough shared value to keep us talking even as we grappled with differences in culture and practice. Once we established the why and how we could serve our industry better together, we began with a set of basic questions — could we help each other raise more money or reduce expenses? Was there a preferred partner arrangement we should pursue? How will we impact our market? At this early stage, it can be tempting to keep score, looking for power positions, but strengths show themselves in slow and sometimes unexpected ways. Balancing patience and momentum is one of the harder aspects of this phase.
On Your Mark, Get Set…
Once you begin down this path, some things happen at a snail’s pace, others move more quickly than you anticipate or are prepared for. You will need to create a steady drumbeat of momentum as both organizations create a shared vision of the future and how your respective constituency will benefit. If you are considering joining forces with another nonprofit, here are a few things to think about as you chart the journey.
There are three main types of mergers: horizontal, vertical, and concentric. Horizontal mergers are typically between companies that are selling similar products in the same market with similar customers. This type of merger decreases competition. Vertical mergers are between organizations that may not compete with each other, but exist in the same supply chain and are designed to exploit existing synergies. Concentric mergers expand the product offering when organizations are engaged in complementary, yet not directly competitive activities.
Ours was a horizontal merger, therefore decreasing competition in our industry and bringing increased value to our shared customer base. Both entities were well known in our industry and it “just made sense” to most of our customers.
So you’ve identified a problem that you think another organization can solve. What next? This next phase can be wild and woolly depending on the business and the people. A few things I learned in the rearview mirror:
- The business opportunity should be understood before the “M” word is used. Then put that knowledge aside, you won’t need it for a while. A big part of the nonprofit challenge is clarity of control. Early in our process, someone said to me that there is no M&A without the A. Nonprofits often prefer the friendlier concept of a merger — it suggests parity. My advice is to know which areas of the combined business will fully merge, which areas will be sunset, and which areas will lead the opportunity ahead. Clarity and willingness to have hard conversations will save you later on. Not every aspect of the original businesses will survive the merger and probably shouldn’t.
- The new “M” word is mission — this will be an important tool for unity. Your board should be unified as quickly as possible in order to help authentically lead change internally and externally. Make sure you have an excellent and committed board chair for the long haul who will manage the board — the people, the process, and the support — so you can manage everything else.
- There will be leaders, strong and valuable leaders, who will be displaced in a new configuration. This will cause stress and pain. To proactively avoid some of this challenge, establish a shared lexicon to define the functions and roles of leaders in both organizations. If one or both organizations are actively seeking to diversify their workforce and leadership, prioritize inclusion, representation, and create equitable opportunities. This priority should be explicitly managed and measured with every major decision.
- You will spend a lot of time with lawyers, which means the phrase “worst-case scenario” will be said many times. Creating a curious mindset in advance of legal all-nighters can help stave off dread, and will be a valuable muscle you will need on the other side.
- You will have to decide, and it will be hard, who should be informed and included. Two different leaders are likely to make a different call on this and it will be something you have to clean up afterward. Information is power — agree on the rules of the road before you start the ignition.
- Governance, with a capital G, is more important than it was before a merger, see pro tip below. Often, a small team negotiates key points and the full board is one of the assets awkwardly mushed together. This was a mistake we made. Our board was introducing themselves to each other two months after the public announcement of our merger. Don’t let that happen. This is an important resource and power center that is best to concentrate early.
- You will be managing a lot of emotion and it won’t always make sense. Corporate mergers are financial transactions — assets and liabilities are assigned value. The currency in a nonprofit merger is less tangible and more emotional. To help balance some of the passion and unpredictable terrain, exercise transparency and empathy, accessibility, and active listening. This will work only if you also practice disciplined and measured decision-making. Impulsivity is not advised during the tightrope walk of relationship management.
- Show up and be willing to have hard conversations. Demonstrate leadership and repeat the value and the process — to yourself and others, often. Take walks. Leverage some of the difficult conversations to go deeper with people about what motivates them, what is fulfilling in their work, what their aspirations are within the new organization. You might not be able to realize them immediately, but you can track the bright spots and the future stars.
- Give yourself a walkaway opportunity and keep measuring against it. At a certain point, let it go and lean in.
- Once you have sealed the deal, employees will care about things that seem small (which email address to use, what to put on LinkedIn, who will be their supervisor). These are not small things — they are signals of anxiety and a genuine eagerness to belong. Have your integration plan ready to deploy on Day One. Create opportunities and spaces for employees to ask questions and support their peers. This will lay the organic groundwork of creating the new organizational culture — one that will be the foundation for the success of any non-profit merger.
Pro tip: nonprofits are governed, not owned. Choices and autonomy you may have enjoyed as a successful CEO will not be possible at the start. Not for reasons of doubt, but in the delicate dance of merging mission-based organizations, autonomy simply makes everyone nervous. So does indecisiveness, so practice balancing these things. Decisions will be less like a pyramid and more like an hourglass. I can see now that I was at the pinch point of the hourglass — the point where the sand moves slow and fast at the same time until it is flipped over.
As revenue forecasts become increasingly unpredictable and nonprofit leaders prepare for what may be a long-term economic downtown, the existential question of survival is in the air. In some cases, a solution may be a nonprofit merger.
