Today, Maine’s nonprofits are trying to ride out a “perfect storm” of challenges arising from the pandemic and its associated economic effects, including uncertain funding, increased demand for services, and inability to interact with clients in traditional ways. Constricted budgets have sent some struggling agencies searching for allies with the resources required to support their work, organizations that might be willing to acquire them through a formal merger. Here at Starboard Leadership Consulting, we have discussed the pros and cons of mergers with a number of executive directors and board leaders.
In general, people think of mergers as combining two organizations into a single one to reap benefits from synergies or strategic alignment. Organizations that merge for synergy look for efficiencies of scale; combining “backroom” and support operations, broadening managers’ spans of control, or sharing facilities and equipment. Organizations may also merge for strategic reasons such as capturing a larger share of the market for services, reaching new client populations, or offering a wider range of services.
Unfortunately, most mergers are not marriages of equals. Most often a strong organization takes over a weaker one, and post-merger identity and leadership quickly emerge as issues. Perceived financial advantages may be hard to realize and organizational cultures may prove incompatible.
If time permits, a less challenging approach may be to consider partnerships with similar organizations. Mergers are best seen as one end of a wide continuum of partnering possibilities:
- Coordination of operations and tactics to save costs lies at one end of the partnership continuum
- Cooperation to expand services and avoid duplication might follow
- Collaboration can result in seamless pathways and joint programs that are valuable to a service region
- Consolidation through merger or acquisition is the most visible and permanent option, with irreversible legal and branding implications
Coordination, cooperation, and collaborative programs allow potential merger partners to become more familiar with each other by playing for lower stakes. Such partnerships can put all parties on a better footing to evaluate the prospects for a merger. CEOs and board members need time to analyze their organization’s budget, financial position, and strategic resource allocation as well as the finances of the presumptive partner. This understanding will be the first step toward evaluating the fiscal strength of the new, combined entity.
If you are considering a merger or acquisition, Starboard Leadership Consulting is here to help!
Mike Hyde authored this blog post in his role as a consulting partner and executive coach at Starboard