Why not-for-profit mergers fly or fail over ‘alignment’  

Creating this alignment through clear governance of the merger process can increase the chance of success, though it doesn’t guarantee it. I discuss this in more detail in the accompanying video. Key aspects of this governance process include:

Alignment with purpose

The first question organisations should be asking is “What is it that we are trying to achieve and does it align with our purpose?’” The answer is the guiding star for the whole process.

Merger strategy

Plan how the agreed goal is to be achieved. This will include setting aside a budget for the time and resources required.

Laws of attraction

A merger process in the NFP sector is less about acquiring and more about being attractive to potential partners. This can mean allocating time for a brand refresh, or making the hard decisions needed to bring an organisation to viability. Once a potential partner is interested, it is important to invest the time in getting to know each other – the foundation for due diligence.

Aligning people

The final piece is the alignment of people. Staff, stakeholders and members all form part of the process. It starts with assessing the alignment of a potential partner’s culture, and it ends with the most significant task in any merger: integrating the two organisations.

There’s a lot of discussion about whether we need to consolidate the not-for-profit sector, to reduce the number of charities and not-for-profits. Personally, I don’t agree with the idea that consolidation is necessary.

However, an opportunity for a merger or acquisition is worth considering. And unlike in the for-profit world, it’s not simply a matter of writing a cheque. There’s a certain complexity and even a bit of magic to it.

When a merger is not the answer

I’ve worked with several organisations, and while I can’t name names, here are some real-life examples of mergers that have worked, and why.

Regional organisations operating in the aged care or National Disability Insurance Scheme (NDIS) sectors – often both – face increasing pressure to meet high levels of compliance, address staffing challenges, and manage limited funding.

One regional organisation, looking to meet these challenges and maintain its purpose, set a clear goal of finding a larger partner to merge with, aiming to preserve its mission locally. By defining its goals, allocating funds, and developing a strategy, it identified several potential candidates and followed a structured assessment process.

In the end, it formed a collaboration, not a legal merger, which still met its objective of securing the organisation’s future.

Mergers may be the answer for federated organisations

Federated models often appear well-suited to mergers. I have seen several proposed that did not proceed – but some that did.

So, what made the difference? In my view, the merger goal-setting process has to clearly define how the new entity will serve the purpose of all the organisations involved. Federated models often include entities with slightly different purposes or strategies. The initial focus must be on whether these can be aligned.

If alignment is possible, the chances of a successful merger increase. If not, a merger is unlikely to be the right path.

What about organisations offering the same services in different places?

Where two organisations are essentially providing the same service in different locations, and the result is simply “one plus one equals two”, there may be no clear benefit to a merger – even if their purposes are aligned.

They might continue operating separately and achieve the same outcome. There needs to be a deeper advantage to merging, as economies of scale are not always material. In these cases, boards often conclude that there is no clear case that a merger would be in their organisation’s best interests.

When the stars align and two organisations come together to become more than they were apart, the process can be transformative. With sound governance, you give a merger a greater chance of success, and you get clarity on when it is not the right decision.

Justin Hogg is the managing director of RightSource, a consultancy supporting not-for-profits with services including governance advice, secretarial support, accounting, coaching and board facilitation.

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