Are nonprofit mergers worth it?

I’m organizing a workshop for later this month for the Grantmakers Council of RI called “How Grantmakers can Help Nonprofits Survive and Emerge Stronger in 2010.”

The workshop will focus on how this climate presents unique opportunities for this sector to become more intentional about strengthening the nonprofit and philanthropic infrastructure.

As a few of the grantmakers have been overly focused on mergers as the solution in these tough economic times, the discussion will highlight other opportunities shy of merger for collaboration and consolidation of management services.

Last Thursday I was chatting with a consultant colleague whom I’ve recruited to be on the panel.  She was recounting her own work facilitating mergers and how these experiences have left her convinced that mergers are often not worth the time and expense that goes into them. She was pointing out that mergers usually require costly consultation and legal services and amazing amounts of time and energy from the staff and board. Rarely did they result in more income to the new entity. While eliminating program and operational redundancies were positive outcomes of some mergers, there are other methods of achieving those same results.

I was agreeing with her that different types of consolidations — e.g.  parent/ subsidiary arrangements or the development of management service organizations — offered more opportunities for nonprofits to increase time and energy devoted to mission while improving the quality of financial and administrative services, and maybe even reducing costs  (or at the very least, decreasing inefficient or ineffective deployment of skills to task). We’ve both been participating in efforts here in RI and elsewhere to get the word out to nonprofits of all sizes of the other options worth exploring.

Barely do I hang up the phone when another colleague forwards me a copy of David LaPiana’s latest article, Merging Wisely, published in Stanford Social Innovation Review.  In the article LaPiana makes the case that funders shouldn’t necessarily be putting pressure on nonprofits to merge. Other forms of partnerships, including parent/subsidiary integration, management services organizations, joint ventures, might be much more effective.

I’ve personally been asking many of my strategic planning clients to at least imagine the possibilities these partnerships might present. I think you’ll find the article worth reading.