Not-for-profit under pressure

With more not-for-profit organisations facing budget cutbacks, mergers and acquisitions are becoming more commonplace in the sector. Domini Stuart asks what creates a successful not-for-profit merger. 

Over the past five years an unprecedented number of not- for-profit (NFP) organisations have amalgamated or merged. Privatisation, commercialisation and corporatisation are all playing a key role in this, as are moves towards customised services and consumer choice, says Michael Goldsworthy MAICD, principal consultant at Australian Strategic Services. 

“Consolidation is unrelenting – we’re seeing between 50 and 100 mergers each year. Government reports and policy reforms are also reshaping organisations’ business models and the way directors and management are thinking about the businesses they run,” he says.

NFP boards are responding to this uncertain future by looking closely at strategic risks and how they might mitigate them. “We were very concerned about staying viable in a highly competitive environment,” says Julia Mollison, a director who helped steer Family Based Care Association (North) (FBCN) through its recent amalgamation with integratedLiving Australia. “In order to comply with the the aged care reforms we would have to invest in new business systems and structures and also start actively competing for business. We decided that a merger would make strategic sense.”

FBCN employed a consultant to help them find a like-minded organisation and, over time, integratedLiving Australia emerged as a viable partner. “We then held meetings over a period of several months to negotiate the terms of the merger,” Mollison continues.

Now, as one of two former FBCN directors on the integratedLiving Australia board, Mollison is satisfied that the process was worthwhile. “We have greater security of ongoing service provision for clients, plus greater security of employment and improved career opportunities for our staff,” she says. “We’re also part of a progressive and growing organisation.”

Birds of a feather

Birds Australia and Bird Observation & Conservation Australia (BOCA) were both committed to bird conservation. They both had a history stretching back to the early 1900s, occasionally collaborated, had some common membership and a few of the directors were members of the other organisation. Then, in 2010, they decided that joining forces would enable them to create a stronger voice for Australia’s birds without duplicating resources or effort.

The subsequent merger also brought unexpected benefits. “The merger was finalised just before we lost a lot of government funding, and I don’t think anyone had predicted how much better placed we would be to cope with this challenge,” says Gerard Early GAICD, chairman of Birds Australia. “The current board also has a broader skill set because we were able to draw on the complementary strengths of both previous boards.”When times are tough, a merger may appear to be the only means of survival. However, it would be a mistake to assume that bigger is always better.

“Putting two organisations that are not financially viable together does not necessarily result in one viable organisation,” says Susan Rix AM FAICD, partner, tax and business advisory at BDO Australia and a director of Cerebral Palsy Queensland. “You need to be realistic in your due diligence about what changes can be made quickly to ensure the new entity is financially sustainable and more responsive to client needs. If both organisations have been struggling for a long time, where will the capital come from for the necessary changes to systems and processes? And, if both have a culture of bureaucracy, how will being bigger make them more agile?” she says.

When for-profit companies merge, a potential culture clash is one of the biggest threats to success. In the for-purpose sector, aligning values is an even bigger challenge. “Staff at all levels are usually very passionate about the purpose of the organisation,” Rix continues. “They are often less motivated by money than the impact their service will have on others. If there is a misalignment it will be almost impossible to make the merger work.”

Superficial similarities are no guarantee of a cultural fit. “Birds Australia and BOCA had a great deal in common but there were also significant differences because Birds Australia was more focused on science and research whereas BOCA was more community-based,” says Early. “Both organisations believed that putting those strengths together would create a terrific model for social change so their boards and management teams put a huge amount of time and energy into preparing and presenting a really good case for the merger to members,” he adds.

The effort paid off. More than 93 per cent of BOCA members and 95 per cent of Birds Australia’s members voted in favour of the amalgamation. “Having that level of support made it much easier to bed down the issues that inevitably arose after the merger,” Early continues.
Goldsworthy’s work with more than 6,000 NFPs over 25 years has convinced him that boards and management must work together to identify opportunities, likely challenges and the most effective strategy for growth. He also believes the biggest mistake they can make is to rush into a merger too quickly.

“As the sector continues to consolidate there are fewer and fewer potential partners on the dancefloor,” he says. “But that doesn’t mean you have to race into a forced marriage and all of the risks that entails.”

Successful merger tips

1. Know your own organisation well. Be honest about its strengths and weakness and the barriers that are preventing it from having a bigger impact.
2. Leave your ego at home. Make sure you’re acting for the organisation and its members.
3. Know what is important to members and how the merger will benefit them now and into the future.
4. Get data and help from an independent source to establish the possible benefits and costs of a merger. Bear in mind that not all of the benefits will be realised and that costs could double.
5. Resource the merger. Employ a specialist team to integrate the two organisations. 
6. Establish a board subcommittee to oversee the merger and keep others informed.  
7. Bring in experts to help with the process.
8. Establish a second board sub-committee to maintain communication with members and reassure them that the merger is in their best interests.

Susan Rix AM, BDO Australia