Mergers can help NFPS grow but there are challenges. Here are 5 factors to take into account.
Over the past three years, merger activity within the not-for-profit (NFP) sector has remained significant.
More than one-third of organisations in the disability sector alone have discussed mergers in the last 12 months, with 6%t of organisations currently undertaking a merger and 6% having completed one (State of Disability Sector Report 2018).
Mergers can offer NFP organisations the opportunity to restructure and grow strategically, but it’s important to protect from any pitfalls that may arise, according to RSM Australia.
Mathavan Parameswaran, principal, RSM Australia, says, “The NFP sector is facing greater competition and fewer resources. NFP organisations looking to achieve economies of scale or to expand their footprint nationally can benefit from a merger. However, mergers are challenging and organisations need to make sure that proper due diligence is followed to ensure it is the best solution for the organisation and the people it services.”
There are five key factors NFP organisations need to consider before entering a merger:
1. Cultural alignment
NFP organisations need to ensure their culture fits with that of the proposed merger organisation, including shared values, purpose, strategy, and objectives.
2. Understand the market
Before beginning merger discussions, it’s important to understand the drivers for a merger. For example, if an organisation desires a merger to save itself from financial trouble, it could prove to be a burden to the NFP organisation with little or no benefit.
NFPs should also consider alternative options to merger, such as providing services in partnership with another NFP.
3. Consider the business case
When considering the business case, NFP organisations need to ensure:
- the vision conceived from the merger has the approval of the board and other key management
- the merger will result in improvements for people accessing services
- the benefits outweigh the costs
- an opportunity cost analysis that considers what the NFP would do if it didn’t proceed with the merger
- there is a risk mitigation strategy in place that will not expose the organisation to any adverse impacts.
4. Conduct extensive due diligence
NFP organisations need to complete a thorough due diligence process, including financial, legal, commercial, and operational matters.
5. Integration plan
No merger will be entirely seamless, so NFP organisations need to have an integration plan in place to mitigate risk from the merger.
“Before undertaking a merger, NFP organisations need to ensure they have a thorough knowledge of their sector and the wider marketplace,” says Mathavan Parameswaran. “With clear goals and communication, a successful merger can provide greater efficiency and let the NFP organisation deliver services of a higher quality, expand its impact, and grow into new or different markets.”