To Merge or Not to Merge?
By Joseph M. Giso
Nonprofit mergers have been on the rise in recent years for a variety of reasons. In New England it has been primarily due to the convergence of several factors: the high concentration of nonprofits, a slowing economy, cuts in governmental funding, and government scrutiny. All have contributed to the merger rush.
The merger process involves a varied number of internal and external factors that need to be addressed; unfortunately, it often happens that very little is discussed or put on paper. The respective entities rely on their missions to guide them through a successful merger.
To help get the process moving in the right direction when considering a merger, there are some key advantages and disadvantages to consider.
What is a merger?
A merger involves the integration of all programmatic and administrative functions of multiple organizations to increase the efficiency and/or program quality of one or more of the partners. At its core, a merger is the joining of two entities to enhance the performance of one or both organizations.
What are the potential benefits to a merger?
When navigating through the decision making process, organizations should outline the benefits they expect to gain from a merger. These might include:
Improved service to clients through:
A merger might also bring about some drawbacks, such as:
Dilution of operational skills that leads to:
Costs and time required for a merger, including:
Legal or regulatory obstacles.
Resistance to the merger from funding sources, clients, staff, or other stakeholders.
Other factors to consider
Grantors of funds restricted for specific programs or endowments may need to be contacted about the merger to secure their consent to the transfer of funds at issue.
Additionally, matters such as absorption and legal responsibility of debt, the actual and potential liabilities of the nonprofits, lawsuits, contract disputes and/ or judicial decrees, labor union contracts, membership contracts and such, will need to be fully disclosed and investigated.
Combining two complex organizations that have distinct personalities and multifaceted missions can be a challenging but effective way to advance a cause. But be sure to investigate all the options, evaluate the full impact of a merger, and consider enrolling the help of a seasoned advisor.
Stay tuned for Part 2 of this article, The Roles of Key Players in Mergers.
Joseph M. Giso is senior tax manager at MFA-Moody, Famiglietti & Andronico. For more information, please contact Joyce Ripianzi, partner at MFA-Moody, Famiglietti & Andronico, at firstname.lastname@example.org.