Some of my colleagues are here from foundations and are participating in your webinar on mergers and acquisitions to see if there are ways we can support nonprofits in thinking through these things and even implementing them. Can you help us? —From the webinar on Mergers, Acquisitions and Dissolutions.
There are several specific ways foundations can encourage and support nonprofit mergers and acquisitions.
First, and easiest, you can suggest potential merger partners to those who might ask or you think might be receptive to a suggestion.
Second, you can help fund the extensive due diligence and negotiating processes that are usually required to determine whether a merger or other affiliation is feasible. This usually takes a long time and benefits from the services of lawyers, accountants and consultants who like to be paid for their work.
Third, and I think most important, you can assure the merging organizations that they won’t lose grant support from you if they proceed with a transaction and will actually get more from you if they do. If you are funding two organizations that each get a $10,000 a year grant from you, they are deathly afraid that a merger will give you the opportunity to cut the total grant to $10,000 or $15,000 a year instead of $20,000. They are often suspicious that you are urging the transaction so that you can save your money for other things.
If you really want to encourage them to do a deal, you should promise to give them more money after the deal than you gave before. Promise them, for example, a total of $30,000 annually for the next three years to help assure that their joinder will succeed. Particularly if you can get other funders to agree to do the same, it could make the difference between going ahead and not going ahead.
Fourth, which is much less direct but may encourage organizations to approach you on the first three points, is to announce that you (or, better yet, a group of foundations) are not going to continue to fund so many organizations doing the same thing. If, for example, you are currently funding 10 mental health groups, community development organizations, housing counsellors, after school programs, or some other similar type of organizations where a merger could definitely make sense, announce that two years from now you will not fund more than 9 such organizations and not more than 8 the following year. If your funding is significant, you are likely to find that a few of the organizations, especially the smaller ones who could benefit most from merging, will start thinking about ways not to be left out of the funding. And they will probably think it was their idea.
May I suggest a specific addition to this advice. Funding a limited collaborative project can test out the cultural compatibility of the potential merger partners before even considering all the steps you mention. -R.M.