Examine the potential benefits

Your motivation for a merger may be a combination of the reasons outlined below, or none of them. The important point is that you articulate your motivations and use them to guide your assessment of the benefits. Potential benefits associated with mergers are outlined below.

Acquire service delivery capability and human capital

A merger forged on the basis of complementary capability gaps is mutually beneficial – that is, the whole becomes greater than the sum of its constituent parts. Two separate organisations providing services to a similar service-user base may have different ways of delivering services. Exposure and the ability to use different and unique know-how – such as theories of practice and models of care – can increase service delivery quality and ultimately benefit the service-users of both organisations.

Capability in the form of talented staff can also be a very valuable resource. Often the success of a program depends not only on its design, but also on the enthusiasm and expertise of those who run it. The talent acquisition merger motive places special emphasis on ensuring staff satisfaction with a merger for all parties. 

Improve long-term financial sustainability

A merger may present an opportunity to improve your organisation’s long-term financial sustainability through consolidation of administrative functions and other economies of scale. A larger organisation may have better access to funding from donors and government, because a broader suite of services is a more compelling funder proposition. For some organisations, merger discussions emerge from a financial crisis – it may be the only possible way forward in response to uneven or weak cash flow. While partnering with another organisation may ensure programs continue in the short run, the financially weaker party in a merger may find it difficult to negotiate to retain aspects of their identity and brand or to retain ongoing influence over the design and implementation of their programs.

Government wants to talk to bigger organisations, so I think in terms of future funding and longer term sustainability, I think that we’ll get that.
— Not-for-profit organisation that merged with a larger organisation

Protect or further strategic interests

The increased scale that results from a merger may afford greater protection against a current or future competitive threat, or even allow your organisation to expand into different markets. For example, in the case of a youth justice provider merging with a drug and alcohol service, there may be an opportunity to develop treatments for substance misuse tailored specifically to youth. The strategic incentives to merge are strong where two similar organisations serve the same region or service-user group. The opportunity is to provide more comprehensive services and less confusion in the community and for funders. A merger can resolve this confusion. 

Accumulate assets

Some mergers are entirely opportunistic, for example, where one NFP gains control of another with a view to advancing its financial interests. In the corporate world this might be described as an acquisition. Generally, mergers that occur in these circumstances are ‘mergers of last resort’. Alignment of vision and mission is a secondary consideration, or not at all. However, it is important to label this type of merger correctly, to facilitate more transparent discussions around the transfer of assets and future operation of the new organisation. 

There were, I think, a few people who thought this was a takeover, because it brought together a big organisation with a small organisation. This all sounds really nice, warm, and fuzzy now, but is that going to be the reality in the long term, two-three years down the track?
— Not-for-profit CEO

Please feel free to leave questions or comments on this part of the merger toolkit.