Over the last couple of years, the not-for-profit industry has seen an increase in the number of merger opportunities. For example, in the disability sector alone, the National Disability Services reported that 38 per cent of organisations are discussing merger options.
Depending on your situation, there are potentially many benefits to undertaking a merger with another organisation. These typically include achieving economies of scale and/or expanding your footprint nationally to enable further growth in your organisation. However if the merger is not done right, there are plenty of pitfalls that may arise.
This article focuses on the factors you should consider before entering a not-for-profit merger:
1. Does your culture align with the target?
You should always ensure the culture of your organisation fits with the proposed merger organisation. We have seen first-hand organisations fall in the trap of wanting a merger to happen because of the financial upside but then later having to deal with a clash of cultural issues and re-aligning the strategy and objectives post-merger. The cost of dealing with these aspects should not be under-estimated. Further, a culture clash not properly addressed can adversely impact your reputation.
2. Understand not only why you want a merger but why the other target wants a merger
It should be easy enough to know why you want a merger, but it is just as important to understand why the target organisation wants a merger. For example, if you are looking to enter a merger to expand your national footprint to drive growth in your organisation, does the other organisation share your vision? If you understand the target is seeking an organisation to essentially to save them from 'falling over', you need to question whether this is a merger that will deliver a prosperous outcome or a merger that sees you only taking on the burden of the target?
3. Does the merger business case stack up?
A not-for-profit merger business case should consider the following matters:
- The vision envisaged from the merger has the approval of the board and key management
- The merger will result in improvements to people accessing your services
- A cost vs benefit analysis of the merger shows that the benefits outweigh the costs
- An opportunity cost analysis that considers what you would do if you didn’t proceed with the merger, and
- The key business risks identified from the merger have a risk mitigation strategy in place that will not expose your organisation to any adverse impacts.
4. Conduct a proper due diligence process
To protect your business risk, do not take any shortcuts with the due diligence process. Many organisations tend to focus on the financial due diligence and not be overly concerned about the other aspects of the business. However, organisations should not forget to conduct a due diligence over legal, commercial and operational matters.
5. Have in place an integration plan for the merger
Ultimately, no merger will be entirely seamless. Any integration with your organisation will usually have some issues. Hence, it is important to have an integration plan in place to mitigate the risk from the merger.
Mergers of organisations come with many challenges. Organisations need to carefully consider their position for wanting a merger. They need to ensure any steps to proceed with a merger aligns with their culture and strategy, and that it delivers better outcomes for key stakeholders.
For more information on a not-for-profit merger
If you have any questions, or require further information on a not-for-profit merger, please contact your local RSM office.