Assess key internal and external relationships
Prior to considering a merger it is critical to consider how your organisation’s key internal and external stakeholders may respond to and be impacted by a merger with another organisation.
Preparing for a merger puts a sharp focus on internal processes – how your organisation works. This can distract from delivering on your mission and putting service-users first. View all merger considerations through the lens of the interests of your service-users. A merger may affect what services you deliver to service-users, where they are delivered, and by whom. It is therefore reasonable for service-users to be concerned that their interests might take a back seat. Allaying these concerns is part of preparing properly for a merger. Whereservices are likely to change (which is difficult to predict at this early stage) you need to explain to them that their interests are your priority, and that service-users will be at the centre of any decisions about the future of the organisation. If you skip this step, uncertainty about future service provision may manifest as service-users expressing frustration with your organisation or sharing negative associations with their peers. Where services are unlikely to change (e.g. when a large organisation acquires a smaller organisation’s program) this should also be communicated to service-users.
Board members and executive team
A merger proposal is likely to surface many different views about the organisation, its history and its goals. Board members and executive staff will have different perspectives and concerns. An early and open discussion about the principles for proceeding to merger allows exploration of underlying points of conflict before you enter discussions with other and strengthens the organisation’s understanding of the rationale for a merger. Without this, the stresses that a merger can cause may exacerbate latent differences in opinion about what decisions are in the best interests of the organisation, and in the most serious cases, have the potential to create a substantive split between Board and/or executive team members. A potential merger opportunity is a useful pretext to resolve internal differences.
Prior to entering into merger negotiations it is also critical to have open and frank discussions at board and executive levels about what impacts a merger may have on leadership positions within the organisation and what the board and executive teams might look like in a newly created organisation – particularly if you merge with a larger organisation.
Many NFP organisations manage a web of interdependencies across the service system. A merger will affect external partners and are therefore important stakeholders to consult with. Carefully flag that you are considering a merger to uncover their views, and to understand what impact a merger might have on their relationship with you. It is of course crucial to gauge the enthusiasm of major funders for any proposed changes to organisational structure. Corporate and philanthropic funders may have a close relationship with the CEO of one organisation, and feel apprehensive about whether they can achieve the same impact with their contribution after the merger. Similarly, donors and bequestors may feel attached to one cause, but not the other, and may wish to withdraw their support if substantial change to strategy and branding is the outcome of the merger.
Some external partnerships are sustained by informal or formal contracts. Your preparation for a merger should involve a review of all legal contracts your organisation has entered into, and any other legal and non-legal agreement you have with external parties. Your review of contracts should consider:
- Whether existing contracts impose any additional requirements on the merger, for example the consent of an additional party (e.g. contracts with the Commonwealth government). For example, a government grant may stipulate funding for a particular program in a particular region. If a merger expands the region in which you provide services, it may have implications for your grant.
- Which contracts will be transferred to the merged entity and which will be terminated.
Contracts may be difficult to interpret and you may need to seek legal advice. For more detail on contracts, see Justice Connect’s legal information for community organisations.
Furthermore, members of your organisation are affected differently by different ways of working together. Collaboration, alliance and subsidiary relationships do not affect membership because there is no transfer to another organisation. For merger structures where both organisations are subsumed into a new merged entity, or where one organisation is subsumed into the other, membership may not automatically transfer to another organisation and you may need to seek legal advice. For more detail on the implications of a merger structure on membership transfer, see Justice Connect’s Guide to Working With Other Organisations.
Please feel free to leave questions or comments on this part of the merger toolkit.