As your not-for-profit organization (NPO) considers viable strategic options to address operational, financial, or environmental challenges, merging to create a stronger and even more relevant organization may be the right solution.
To help you plan strategically, we explore the top considerations not-for-profits need to critically evaluate for a successful amalgamation.
When should two (or more) become one?
Whether you merge, amalgamate, or consolidate, in the not-for-profit realm, all roads lead to the same destination—that is, combining two or more organizations to become one. Or, more specifically, dissolving the amalgamating organization's boards to establish a new one.
Typically, no money changes hands, and the new successor organization assumes all the membership, team, assets, and liabilities, including any leases. Everything becomes part of the new entity.
For many organizations, joining forces is an incredible opportunity to improve their mission, combine resources, and maximize their impact on the communities they serve. Sometimes government or grant makers mandate mergers to avoid duplicating services and to minimize costs. Other times it is a lifeline to recovery from a catastrophic event.
How successful these collaborations become; depends on the route taken to get there and how well organizations understand the dynamic cultural and operational challenges of tying the knot before they plot their merger.
Are we the right match?
Like marriages, amalgamations do not happen overnight. It can take a long time to find the right partner. There are numerous phases of due diligence, which involves both organizations getting to know each other, including meetings with management and the two boards, reviewing and analyzing information, looking at the commonalities and differences, typically with the assistance of an advisor, or the entity's accountant or lawyer.
There are many issues to consider, such as succession issues, cost of technology, increasing regulations, and compliance. Not-for-profits should pay close attention to the risks and liabilities that may be attached to an organization, such as pending litigation or outstanding debts.
Regional issues and the size of the organization may be another factor, especially where a smaller organization has ties to their community, personal connections, and donors that larger organizations may not have.
Assessing these issues and the organizational cultures beforehand will reap huge dividends in getting the board members aligned, redefining senior leadership and staff roles while considering redundancy, and ultimately meeting their short and long-term goals.
What assets are we bringing to the table?
Because the road to amalgamating is often fraught with bumps and uncharted terrain, board members, leadership, and senior staff should come equipped with a diverse skill set to manage strategic planning and transition.
Priority among the leadership skills are cooperation and empathy because in coming to the table, everything is negotiable. The ability to present and support the amalgamation as an opportunity to the two boards will be critical. Whichever leader becomes the CEO of the newly amalgamated organization will need compassion and understanding to integrate and harmonize the two groups successfully.On the technical side, having an experienced team can help bring two potentially different accounting software systems together and ensure a seamless blend of your back-office needs, so that the organization is financially secure, and protected against any disruptions during and after the merger. The CPA Canada Handbook has issued Section 4449 Combinations by Not-for-Profit Organizations to give guidance to on how to account for mergers and amalgamations in their financial statements.
One of the most significant assets driving a successful merger forward is a detailed strategy with specific milestones and activities. When you follow a comprehensive plan that avoids amalgamation obstacles, your not-for-profit will end up in a better position to fulfil its mission and ensure the services provided to the community are even stronger.
How BDO can help
Is a merger on the horizon for your organization? Our team of BDO advisors have a clear view of change management, transition, and succession to prepare your not-for-profit for amalgamation, and assist you throughout the process.
Melanie Borho-Persechini, Partner
Jeff Noble, Director, Business Transition Services