We are seeing more and more organisations across all parts of the not-for-profit sector including ‘collaboration’ activities in their strategic plans. Over the last few months, the Good Foundations team has worked on several projects where organisations were looking to merge; from this, our take on the 5 most critical elements for merger success for not-for-profit organisations is:
1. The first step is to get to know each other really well – understand each other’s business model; what do they do, how they do it and why do they it. Linked to this are the old classics of whether the cultures are aligned, do we have complementary strengths and weaknesses, are growth plans of each organisation aligned, along with respective risk appetites. We recommend that each party is also really clear and open on what you are expecting the other party to bring to a merged entity – your assumptions may not be right. Spend time together (boards and management) asking questions and sharing information in a face to face environment. This process often draws out false information and misconceptions that can speed up the process and build trust. Don’t fall in the trap of knowing the only organisation only at a superficial level and still not really understanding the other 6 - 12 months later when it gets to the pointy end.
2. Make sure the merger makes business sense – are the arguments to join together compelling, do they stack up financially and will NewCo be more than just the sum of the two entities (1 + 1 should = 3)? Consider what will happen if you don’t merge, is there a burning platform? You will have to convince various stakeholders so the benefits of merging need to be articulated clearly.
3. What are the common key sticking points? Every case is different but the common ones are:
- Being clear on the purpose of NewCo
- Who will be the members of NewCo, what voting rights do they have and are there different categories of membership
- Board composition and appointment process
- Business model + services/products to be offered by NewCo
- Pace of change expected by either party when joining the businesses together e.g. back office functions, rebranding etc.
4. Have some principles defined that you can always fall back on when things get tricky and keep coming back to ‘why are we doing this’ and be willing to negotiate and compromise, if you truly believe a merged entity can deliver significantly better outcomes for those you are trying to assist.
5. If you are not going to merge (which is fine if that is where you both land), decide it as quickly as you can. Work out the key issues and your lines in the sand and communicate them early. A drawn-out discussion saps everyone of energy and there is the risk that both parties lose focus on their existing businesses whilst merger talks are happening. Get your own house in order in terms of what you are expecting of the other party, what are the views of your key stakeholders, and what information you can share on your own organisation ready early on.
In making the decision to merge, we have put together a simple, practical one page Merger Checklist which is freely available on our website to help you keep track of where you are at in the key aspects of potentially merging.
It has become clear to us that best chance of success comes through the willingness to have open, honest and frank conversations, and know the views of your key stakeholders before you meet with the other party. Collaborations and partnerships are an increasingly important consideration for organisations in the current not-for-profit climate in Australia.
While we are certainly advocates of collaboration across the not-for-profit sector, full mergers are complex and are often a difficult road to navigate well. They take time and resources. So, we’d suggest perhaps try dating a bit with another organisation, by perhaps working on a joint project / joint funding submission, maybe share some back-office functions or do some joint procurement and see how you go. After all, we all know how Married at First Sight usually works out.