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Puzzle Pieces

Lessons Learned from Successful Mergers & Acquisitions

Is your nonprofit considering a merger or acquisition? If so, congratulations! There can be great advantages to joining forces with another organization that complements your mission.

Having managed two acquisitions within three years, I have learned a lot about these kinds of transitions. I’m happy to share a few lessons our organization learned along the way, in hopes that our insights might help you.

Why a Merger or Acquisition?

Your nonprofit may want to expand your services or the clients you serve. You may know of complementary programs that are already doing these things well, and feel you could do an even better job if you worked together. Those are excellent reasons to unite with another nonprofit.

In our case, we didn’t want to change our fundamental services, but we had a clear growth plan. We knew that to really have an impact on our community we needed to invest in our capacity and to make that investment we needed to grow. For instance, becoming a larger organization allows us to purchase software and develop meaningful strategies for measuring the impact of our services (something granting organizations increasingly require). It is more cost-effective for us to spread expensive software and other costs over, say, 40 programs rather than just 20.

Plan Well Before You Act

Our board and officers talked openly about our plan to merge with or acquire another organization long before an opportunity presented itself. We needed time to clarify our strengths, identify our gaps, and brainstorm possible pitfalls. Then we began looking for potential candidates. I’d advise other nonprofits to do the same. Things can move quickly once you decide to acquire, and you might not have enough time to think strategically.

Dealing with Donors

Some of our regular donors gave money both to us and one of the nonprofits we acquired. An example: They might have given $5,000 per year both to us and our partner. We assumed they would automatically give a combined $10,000 to our newly merged nonprofit. That wasn’t always the case. Some donors had personal limits as to how much they were comfortable giving to a single charity. We learned it’s important to talk in advance and regularly to these “combined” donors to make sure their gifts don’t drop dramatically.

Combining Cultures

When it comes to bringing your two nonprofit staffs together, you can’t communicate enough! Employees are understandably nervous about how things will change, and that can leak through to volunteers and clients.

During our acquisitions, we held a Day One celebration breakfast and staff meeting at each location. We held departmental meetings throughout the day. In the following weeks, we sent emails regularly and answered staff questions when they arose. I also worked at our acquired organization’s office one day a week for several months. That way, employees could stop in and talk to me in person.

Notifying Contract Organizations

We learned from our first acquisition that we needed to be careful about dissolving the 501(c)(3) status of one of our two merging organizations. If you have state contracts, for instance, that act might automatically cause your contract to go back out to bid. So during our second acquisition, we structured the deal in such a way that we could retain both 501(c)(3)s and keep our state contracts in place.

Be Warned: You Won’t Save Money

Finally, I tell other nonprofits—and encourage them to tell this to their boards over and over—that you won’t save money during an acquisition or merger. Most organizations have already been running on a shoestring. Modifying programs, computer systems, and buildings will initially cost you more than you expect.

However, the process is worth it over the long term. If you pick a good partner, you’ll be able to serve your community better than ever before, grow your organization, and be more responsive to your donors and granting organizations. So plan carefully, build a solid contingency fund, and get ready to make the leap!

 

 

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Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Please note that Patrice Picard is not an employee of RegentAtlantic and this is not an endorsement.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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