In this week’s edition of Ask an Expert, we answer a reader question about broaching the topic of mergers during the pandemic-induced recession.
Greg Miller, CEO of Penn-Mar Human Services, and Sandi Clement McKinley, vice president at the Nonprofit Finance Fund, provide the answers.
What are you trying to figure out in the midst of the pandemic? Send us your questions about fundraising, management challenges, and more, and we’ll track down the right experts to answer them. Submit your questions to askanexpert@philanthropy.com, and we’ll answer a couple each week. Let us know if you’d like to remain anonymous.
We know not all smaller cultural nonprofits will survive this crisis, and we would welcome opportunities for merging (taking smaller museums into our fold). How can we begin those conversations while being conscious of not wanting to be perceived as predatory?
— Anonymous museum leader
The economic crisis touched off by Covid-19 has exacerbated the already precarious nature of being a small nonprofit. Many organizations that didn’t have reserve funds or access to wealthy supporters are facing extreme financial pressure and the possibility of pausing operations for an extended period or closing permanently.
It’s only natural for boards and leaders to consider the spectrum of options available to ensure the stewardship of the organization’s mission and assets, McKinley says, and mergers are among the options most frequently raised.
Groups that help organizations manage their finances say they’ve seen an uptick in discussions about mergers and collaborations since the pandemic began.
Typically, it’s groups facing difficult financial straits that bring up the idea, McKinley says. But here the question is raised by a presumably stronger or more financially stable nonprofit.
“Any organizational restructuring must be voluntary and board-supported, and so first taking the time to gain agreement and clarity among your own leadership and board as to reasons for wanting to merge with a smaller museum is crucial,” she says.
McKinley suggests discussing questions like: Why might this be a good mission fit? Would a merger improve, expand, or preserve services for our community? How do we know? Would a merger help us to gain operational efficiencies? Do we have the knowledge and resources to carry it out? What are we able to do or take on?
The answers will help clarify your intention, she says. “This is especially important if there is a real or perceived imbalance of power between smaller museums and your organization due to your size, position in the community, or who sits on your board.”
Any suspicion between the groups discussing a potential partnership — whether that’s a merger, joint programming, or another kind of affiliation — could create a roadblock, Miller says.
He shared his organization’s experience with a successful nonprofit merger earlier this year,
“Constructive merger conversations must begin with an element of trust, and the fastest way to derail trust is for one party to have reservations about the motivation of the other,” he says.
McKinley suggests approaching the conversation in the spirit of inquiry. Rather than asking, “Have you considered merging?” perhaps say, “We have similar missions and are committed to the same community, preservation of similar things, etc. We recognize that the pandemic and economic environment have made the operating environment incredibly difficult, and we are thinking about our strategy moving forward. Would you be open to getting together to share plans or explore opportunities for us to collaborate or be helpful?”
Listen and be open to what you learn, she says.
“Put yourself in the position of the other entity and consider what is most important,” Miller suggests.
If the continued advancement of the organization’s mission is the answer, there is a foundation to build on as the groups consider merger conversations, he says.
The organization being acquired must believe that its ability to deliver on the mission will be improved by the merger, Miller says.
McKinley stresses that mergers cost money and require considerable staff and board time.
“Organizations frequently assume that mergers will result in immediate cost savings,” she says. “But our experience shows that cost savings can be difficult to realize in the short term, especially factoring in one-time costs of planning and implementation.”
The most successful mergers focus on the organizations’ shared mission and both parties “establish candid lines of communication with each other, their funders, and their community,” she says.
Even in normal times, organizations that merge must manage fear, uncertainty, and change, McKinley says. “In these extraordinary times. we must navigate with both our head and heart.”
Read more about making nonprofit mergers work.
Catch up on recent editions of the column.
