Search for a merger partner
Mergers often develop from pre-existing relationships between organisations. You may have developed a strong relationship with an organisation that you work together with often and whose work you value. A conversation about opportunities to increase the intensity of cooperation can evolve to explore the opportunity for a merger.
In reality, you probably already know your potential merger partner – but you may not.
A thorough search for a merger opportunity begins with a scan of the sector, followed by application of a systematic filter to find the best available partner. While existing collaboration partners are the most likely merger candidates, consider pursuing discussions with organisations with which you do not yet have a relationship. Be alert to factors which indicate the time is right to approach an organisation with a merger proposal. For example, if the CEO is retiring, or it looks like the Board is ready to ‘give up’, management may be more willing to open up a dialogue.
When deciding to pursue a merger partner, the type of organisation you approach will influence the extent to which you can achieve your long-term, strategic objectives. Your motivations for pursuing a merger will inform whether you seek a partner that is larger, smaller or the same size as your organisation. For these reasons, your choice of partner should align with predetermined outcomes that you wish to achieve through a merger. Consider whether your potential merger partner will help you to achieve these objectives. Will our organisations cooperate effectively through the hard work of a merger? What is the reputation of my partner and how will it affect ours? Can we build trust quickly? These questions help identify opportunities worth pursuing.
Figure 3 outlines the process used to search for a merger partner, which is described in more detail below.
Sector wide scan
Beginning your thinking with a broad search can unearth merger opportunities you may have otherwise overlooked. The ACNC database provides a useful overview of all not-for-profit organisations that operate in your sector and location.
One way to generate a list of organisations with whom you are already closely linked, is through LinkedIn – a website designed to help manage professional networks. The process is outlined in Figure 4 below.
Refine your list of not-for-profit organisations into a list of merger opportunities. Brainstorm professional connections and conduct desktop research to unearth other possibilities. A meeting with executive staff is an effective way to share this information.
Check alignment with desired characteristics
It is helpful to determine what your ‘best fit’ merger partner would look like under ideal circumstances. This then becomes a useful starting point from which to consider real merger opportunities. To identify the characteristics of your ‘best fit merger partner’ you can have a discussion with your board and Executive about how willing you would be to engage an organisation:
- Clients – with different client groups
- Services – with different programs
- Mission – with a substantially different purpose and mission or that may be that faith-based or secular
- Size – that is significantly larger or smaller
- Ownership – that is community / membership based or autonomous
- Culture – that has a significantly different culture
- Balance sheet – that has a poor financial position
- Location – that operate in different jurisdictions.
These initial conversations about which characteristics of prospective partners you are willing to compromise on will form the basis of your list of non-negotiables. This list will be a vital touchstone through the next two stages of your merger journey. Non-negotiables ensure that what is important to your organisation is front of mind during negotiations, but the key to reaching final agreement is compromise. Look for organisational compatibility, but also the likelihood that your merger partner will also be willing to compromise. However, remember that the extent to which you are able to insist on your ‘non-negotiables’, and the number of non-negotiables you can bring to the discussion depends in part on your bargaining position. This position is determined by a comparison between you and your partner in relation to size, financial performance, reputation, or any other power differential relevant to the negotiation.
Ensure trust key enablers are in place
A successful merger requires mutual trust – both organisations must be willing and able to value each other’s contribution to a potential new entity and to openly share information. It usually takes time and effort to build trust between organisations. Perhaps there have been negative interactions in the past? Perhaps there has been little previous interaction, and the natural inclination is to be suspicious? In most circumstances, the merger negotiation process will be sufficient to build the required level of trust. But if you are concerned that there is no possibility of ever trusting your merger partner, then keep searching.
Once you are in the process of engaging with potential merger partners, conduct discussions in an open and honest, but sensitive manner. Celebrate early areas of shared aspiration to reinforce the perception that the relationship is working well. And make an upfront investment in building relationships at all levels of the business.
Understanding the corporate history of the other organisation well is another key enabler. The better you know the other organisation, the easier it will be to move forward when the time comes to negotiate a merger agreement. Consider how well you know each potential merger partner’s mission, history, programs, funders and culture. If you do not know each other very well, you will have to spend time at early meetings getting to know one another better (See: Make first contact).
Finally, you have to want what the other organisation has to offer. Consider the strengths of their organisation, including the skills of members of their executive and Board, and other resources at their disposal. Compare these to the resources your organisation requires to achieve the desired outcome of the merger. Importantly, you should consider only what resources the other organisation has that your organisation could practicably make use of. For example, the fact an organisation is strong financially should not distract from assessing whether it has the resources you need to achieve your vision and mission.
Please feel free to leave questions or comments on this part of the merger toolkit.