10/20/2016 -
Nonprofit experts predicted a flurry of mergers after the Great Recession of 2008. Mergers could take the sting out of diminished funding, plus pair like-minded organizations to increase their reach and efficiency.
The flurry never happened, and the first ever study of Chicago-area nonprofit mergers reveals why. Mergers take time and money. It's tough to find the right partner. Merging organizations need to figure out how to handle boards and staffing after the merger. Financial issues crop up, too, particularly when one of the merging organizations is struggling. And when the merger is finished, finding common cultural footing can take longer than expected.
These findings are detailed in the
Metropolitan Chicago Nonprofit Merger Research Project, unveiled Oct. 20 at a seminar on mergers and other nonprofit collaborations. Forefront, the Chicago-based organization that represents funders and nonprofits, presented the seminar.
Mergers make sense, they're logical, and only culture gets in the way, says Art Mollenhauer, CEO at Big Brothers Big Sisters of Metropolitan Chicago. The 2010 merger of that organization and Big Brothers Big Sisters of Lake County is profiled in the study.
“It's this need to have a separate identity that people think is extremely important,” says Mollenhauer, an executive at Arthur Andersen, Accenture and Baxter before becoming a nonprofit executive in 2005. “I believe that is not true. It's the nonprofit culture that is preventing more mergers.”
Nonprofit board members are partly to blame, he adds. “Too many people leave their MBAs at the door when they join boards,” he says. “We should be pushing more of this (merger) activity.”
Research was conducted at Northwestern University's J.L. Kellogg School of Management. Polk Bros. Foundation and Chicago Foundation for Women were the main sponsors of the report. Its findings are based on 100 interviews with executives who participated in 25 completed mergers between 2004 and 2014.
In addition to case studies and recommendations for successful mergers, the 100-plus-page report makes some predictions for the future.
One is that more human-services nonprofits will merge or otherwise collaborate, due to the expansion of Medicaid and the ascent of managed care. “Managed care as a business model really likes consolidation,” says Jean Butzen, president of Mission Plus Strategy Consulting, a Chicago consultancy that commissioned the report. “It requires a lot of larger, broader, deeper services that come together to gain efficiencies.”
Overall, the study reveals a trend toward proactive rather than reactive mergers, says Butzen. “The pattern in the past was that the acquired organization was financially in trouble,” she says. In this study, “we saw that organizations really were thinking about the mission and goals, and 'if I merge with you, we could really do these great things.' "
Four years ago, after listening to input from its 250 grantees, Polk Bros. Foundation restructured its capacity funding to help nonprofits interested in exploring mergers. It has since helped about 10 mergers over the past three or four years, says Gillian Darlow, CEO, Polk Bros. Foundation, which provided $40,000 to fund the merger study. The funding includes the development of a toolkit to help nonprofits with mergers.
Darlow hopes the study dispels the “stigmatization” around mergers. “People might worry that it looks like kind of a failure, when actually, it's a strategic choice,” she says.
BEFORE, DURING AND AFTER
The Metropolitan Chicago Nonprofit Merger Research Project, a yearlong report released Oct. 20, is the first study of nonprofit mergers in the Chicago area. Here's what researchers found after examining 25 mergers and interviewing 100 executives.
Before the merger
80% of cases: A prior relationship existed between the two merging organizations
56%: The acquired organization said that financial weakness was a consideration
24%: The loss of a key funder was a factor
52%: A CEO was about to retire, or an interim CEO was in place
During
44%: Outside contributors paid part or most of costs
44%: Naming or branding the new organization was a difficult issue
64%: The cultural integration of the two organizations was more difficult than expected
80%: Hired an outside consultant or facilitator to help with the merger.
After
88%: Organizations felt they were better off post-merger
