Joining Forces: Advice from Grantees Following Successful Mergers
My father was an aerospace engineer. He invented a piece of hardware for Apollo 11 — an “Umbilical and In Flight Disconnect” — and bought a company to manufacture it. When this venture proved successful, a larger company acquired his company.
That acquisition was validating of his invention, his work, and his success.
In the nonprofit sector, “ownership” may be less well defined, but I’m unsure why that equates to a widespread resistance to mergers and acquisitions. Instead of being seen as validating, they’re seen as signs we haven’t done our jobs well.
For years, organizations in the Walter & Elise Haas Fund’s arts portfolio have floated the possibility of restructuring. Some share back-office services or space, but very few merge or get acquired. Could it be because the arts field rewards individual vision? Do organizational leaders feel they have to give up their distinctive voices if or when they join forces?
At a time of constrained resources and high costs, we need to overcome our illogical resistance to joining forces. Last year, six of the Fund’s arts grantees merged or were acquired (five of them based in the Bay Area). Those grantees (in bold) were:
- DataArts acquired by the National Center for Arts Research at Southern Methodist University (SMU), becoming SMU DataArts
- Each One Reach One acquired by Success Centers
- The Imagine Bus Project acquired by Success Centers
- Loco Bloco acquired by Jamestown Community Center
- Streetside Stories acquired by Performing Arts Workshop
I interviewed staff and board members at each of these organizations to learn what shaped their decisions and to ask what advice they have to offer others. Following is a digest of their answers:
What Drove the Mergers?
Acquisition sometimes is recommended for organizations dealing with financial crisis, but, among these examples, only one was struggling financially. Others worried about future financial challenges, however. For example, DataArts had laid out ambitious financial goals in a strategic plan and was uncertain they could achieve them. Streetside Stories had reached the end of a major federal grant and found raising funds from new sources to be slow work.
Other organizational leaders cited changes in communities and the economy. Loco Bloco’s former executive director, Annie Jupiter-Jones, cited transitions in the Mission District:
“Gentrification and displacement, and the cost of living affected us programmatically. There weren’t as many families and kids here. As the cost of living was rising, there was greater competition for space and resources.”
Leadership change was common to all of these mergers. Neither Annie Jupiter-Jones of Loco Bloco nor Robin Sohnen of Each One Reach One wished to continue as executive directors. Jupiter-Jones observed that Loco Bloco had never been able to recruit a board with strong fundraising capacity and was stuck at a certain size and status as a result. Sohnen counts herself among a generational cohort of leaders facing retirement who wanted to see the programs they’d created thrive after their departures. Three organizations — DataArts, The Imagine Bus Project, and Streetside Stories — had lost their executive directors, and a benefit to merging was not having to invest in an executive search. During those three merger negotiations, the organizations were led by interim executive directors who may have felt less threatened about being acquired than might a founder or long-time executive. Those leaders were ready to cede control to the acquiring executive directors.
Several grantees noted that as larger, merged entities they would be better positioned to maintain human resources staff, legal advisors, tech support, and other administrative services. Many staff members who got re-hired by the acquiring agencies ended up with better employee benefits.
The wish to improve program effectiveness also played a part. DataArts leaders believed that being based within a research entity at SMU would enable them to enrich their services to both scholars and nonprofit leaders. Each One Reach One and The Imagine Bus Project recognized that youth in the juvenile justice system — part of their constituency — also needed counseling, health services, academic assistance, job preparation, and post-release opportunities. Merging with The Success Centers integrated their programs into a broader network of services.
Choosing a Partner
LaPiana Consulting, a respected Bay Area firm with expertise in nonprofit mergers, emphasizes that organizations that join forces need to have complementary missions. To that point, several organizations in this group considered a number of possible partners before making their ultimate choice.
While each leader I interviewed valued having a shared purpose, they also said that complementary organizational structures, cultures, and leadership styles were also important.
What Was Hardest?
Performing Arts Workshop’s executive director Emily Garvie noted that some feel that “a merger is like waving a white flag.” Universally, all the leaders I interviewed said the hardest aspect was letting go and as being left with a lingering feeling that to be acquired was to admit defeat.
As a point of pride, the acquired organizations wanted to retain their names. Loco Bloco, Each One Reach One, and The Imagine Bus Project all were acquired as branded projects within their new nonprofit homes.
Take Time to Test the Experience
Myrna Melgar, executive director of Jamestown Community Center, advised, “People think about mergers as a business transaction, but in the nonprofit world, people do this work out of love and they are attached to the institutions and people in the community. That needs to be honored.” Her merger partner, Annie Jupiter-Jones, pointed out that they “started combining programmatic activities first, so that by the time they got to the administrative level, our decisions were guided by what made the program work best.”
Similarly, Liz Jackson Simpson, executive director of the Success Centers, noted, “We put aside the time to live it without actually merging. We co-existed. That enabled us to know the culture of the organizations and the programs and how they were run. It was a huge thing to spend that time together.”
Emily Garvie admitted that Performing Arts Workshop had approached the idea of a merger in 2016 and it didn’t happen. “I remember our former board president, when we were making the hard decision not to move forward, said, ‘Give it time and it will come back.’” In retrospect, Garvie is happy that they waited.
The ultimate success of these partnerships will be clearer in two years, but final reports received one year in suggest that grantees’ thoughtful groundwork paid off and programs are going well.
What Can Funders Do to Help?
- Mergers cost money. Many of the Fund’s grantees worked with consultants on their mergers and all hired attorneys. Further, Neela Gentile of Streetside Stories pointed out, “People don’t think about the cost of closing down an organization, that it’s significant to close the books and file a set of taxes, and to buy your way out of a lease, to prepare insurance and website hosting costs, etc.” Streetside Stories credits an organizational effectiveness grant from The William and Flora Hewlett Foundation as being essential to their successful merger.
- Don’t wait for a crisis. If you think a grantee is amenable to a merger or acquisition, encourage them to explore it when they are stable. These processes should not be rushed and there are costs involved that could overwhelm an organization in crisis.
- Allow your grantees to walk away from a deal. If you are supporting an organization that is considering a merger, realize that compatible organizational cultures are essential. If they need to walk away from a negotiation, or if the timing is not right, allow for that.
- Be realistic about cost savings. Merged organizations will be able to achieve some savings on their administrative costs, but program delivery costs will not change.
- Continue support for programs you believe in. Three of the Walter & Elise Haas Fund’s arts education grantees now are based within youth development or human services organizations, and one independent nonprofit is now part of a major university. The Fund continues to support all of those projects in their new homes, even though they are no longer technically arts organizations.