Merger Mania

September 1, 2005       Don McNamara      

Three California organizations are engaged in a prolonged courtship, staging merger talks to decide if they can establish a long-distance relationship stretching from San Francisco to Los Angeles, even as far as Sacramento.

They want to know if they can create a real commitment or just stay good friends.

In early July, another organization in California reached all the way to Indiana to become part of a larger entity.

Also in July, in Chicago, officers of two Washington, D.C.-based nonprofits were conducting what managers thought were the final stages of merger talks. They were wrong.

Summer may be nearing an end, but things are still heating up on the nonprofit front, with merger talks going on from coast-to-coast.

It’s merger mania. Or is it?

Discussions among CompassPoint Nonprofit Services in San Francisco and the California Association of Nonprofits and the Center for Nonprofit Management, both headquartered in Los Angeles, are continuing, although no announcement has been made.

As this issue went to press, however, a proposed merger between the National Council of Nonprofit Associations (NCNA) and the Alliance for Nonprofit Management (the Alliance) has fallen apart.

According to a memo to members of the Alliance from Natalie Abatemarco, chair of the Alliance board, both boards decided to maintain separate organizational identities.

Talks between the two Washington, D.C.-based organizations had been going on for more than a year. They co-sponsored a conference in Chicago during mid-July, the third conference sponsored jointly by the two organizations.

The theme of the conference was “The Communities We Serve: Building Capacity for Impact,” and there was an expectation that the get-together would provide the opportunity for announcing a merger. Instead, Abatemarco told conference-goers that talks were taking place, and officers of both organizations said after the conference that talks would continue but no merger had been completed.

Less than a month later, the idea appeared to be dead.

In the memo, Abatemarco offered no reason for the decision. The memo mentioned that earned revenue of the Alliance accounts for 70 percent of its operating budget and that a planning process will begin to strive for economic self-sufficiency rather than dependence on grants.

Michael Weekes, board chairman of the NCNA, confirmed that talks had ended. “Our conversations on discussions of a merger took over a year, but after deliberation concerning matters with our strong and mission-driven organizations, we have decided not to talk of a merger at this point,” he said.

Weekes said that the issues that attracted the two organizations in the first place included similar values and missions and cultures, as well as concerns about strengthening the nonprofit sector and capacity and a need for a stronger national voice for public policy related to nonprofit issues.

“We looked at both our organizations and where we were in terms of governance, structure and felt that at this time there are other ways we can work together,” Weekes said. He added that the conference in Chicago was very successful in terms of how many people attended, and he said the organizations believed that there are other matters on which they could work together, including a nonprofit congress they hope to convene next year in Washington, D.C.

Last year, the two organizations formed a partnership committee to review a merger possibility. The talks were spurred in part by a call across the nonprofit sector for a unified voice speaking on its behalf rather than a multitude of voices saying the same thing.

The NCNA is an umbrella group that represents a network of 38 state and regional associations of nonprofits serving some 22,000 charities nationally. It is considered to be strong on advocacy.

The Alliance has a membership of about 575 groups and 1,150 individuals and works directly with 44,000 nonprofits, many of which are small to mid-size organizations. Its largest membership groups are management support organizations, independent consultants and consulting firms. It strong point is its national reach.

According to a merger update posted on the Alliance Web site in May, the four primary motivators for the proposed partnership are the need to develop and promote promising practices that enhance the capacity and accountability of the sector; the need to build bridges among nonprofits and to unify diverse nonprofits; the demand for the sector to be more effective in influencing the social, economic and fiscal decisions that impact communities across the country and the need the raise the profile of the sector as an agent for good in America.

Both Abatemarco and Audrey Alvarado, executive director of the NCNA, spoke positively of the talks after the conference, but both cautioned that no deal was imminent. Alvarado mentioned the fall of this year as time for renewed discussions, and Abatemarco had said talks would continue for as long as was necessary.

Approval by the NCNA’s 38 member organizations would have been required for any merger to take effect. Member approval of a merger would not have been required by the bylaws of the Alliance.

Even though this particular merger fell apart, the talks between NCNA and the Alliance highlight what is happening to nonprofits throughout the country. Merger talks have been a hot topic of conversation in philanthropic circles lately.

Jan Masaoka, executive director of CompassPoint Nonprofit Services, confirmed that her organization has been in talks with the California Association of Nonprofits and the Center for Nonprofit Management.

Cautioning that these talks are in the early stages, Masaoka said that there is a possibility of an entirely new organization emerging from the talks, with locations in San Francisco, Los Angeles and the state capital, Sacramento.

“All three organizations have seen a real convergence these days of advocacy for nonprofit organizations and technical assistance for nonprofit organizations,” Masaoka said. “With one state organization it may be possible to continue that trend and create something new and powerful for California nonprofits.”

Masaoka said that talks have focused more on the needs of the sector than a merger, and she added that the fact that these talks are happening is “powerful and significant.”

In early July, The Center on Philanthropy at Indiana University announced that it will be acquiring The Foundation Incubator (TFI) of Palo Alto, Calif., an organization formed to stimulate innovation and collaboration in philanthropy by providing a range of services to nonprofits.

TFI will now be known as the Philanthropy Incubator and will become a program of the Center on Philanthropy. It will also have an office in Silicon Valley.

Eugene R. Tempel, executive director of The Center on Philanthropy, did not want to call the agreement an acquisition, but he did say that TFI would be dissolving into The Center.

Tempel noted that this agreement makes sense because The Center’s approach is to provide services such as workshops and advice nationally and internationally, making the best possible use of intermediaries and partners with whom to work.

As for what looks like a nationwide eagerness to merge, Tempel said, “I don’t know if I’d call it a mania,” although he did acknowledge that many nonprofits have been joining forces in the past decade or so. He has discerned two main driving forces in these associations.

“One (factor) has been a great interest on the part of funders and donors in seeing if there are too many nonprofits. They see two organizations that look similar, that is, they are dealing with the same thing, and ask if they can’t become one. They are looking for economies of scale.

“The second part is being driven by the organizations themselves, especially in the past five years or so when the growth in philanthropy is more flat. Some organizations do join up because they think they can have a larger impact. Others think they can scale against another’s platform.”

As an example of joining forces, Tempel cited the merging of Boys and Girls clubs into one entity and, closer to home, The Center on Philanthropy’s acquisition of the Women’s Philanthropy Institute in January of 2004.

“When we moved them here (from Rochester, Mich.), they didn’t have to pay rent or similar operating costs any more, for example,” Tempel said.

Even present-day mergers can involve organizations that resulted from mergers. The Alliance for Nonprofit Management came into being as the result of a merger in 1998 of the Support Centers of America and the Nonprofit Management Association.

One of the board members of the Support Centers during that merger was Larry Guillot, a Kansas City, Mo.-based consultant. Guillot, through his firm Creative Community Services LLC., has been facilitating merger talks between two organizations, Kansas City Harmony, an organization dedicated to promoting race relations and diversity issues, and the National Conference for Community and Justice, a local affiliate of the organization formerly known as the National Conference of Christians and Jews.

In terms of what appears to be a tendency toward merger or acquisition in the nonprofit sector recently, Guillot said the proposed merger between Harmony and the NCCJ affiliate in Kansas City is an example of what many nonprofits around the country are doing.

“The national organization had maybe 50 affiliates at one time, but now it is in the 30s,” he said. “They raised money locally but they were not incorporated locally, so now national is requiring locals to incorporate locally.”

The amount of collaboration that had already taken place between the two organizations, combined with the national office’s emphasis on local autonomy, made a merger good sense, Guillot added. Both were already doing a great deal of work on the same issues and concerns.

Guillot also said that there has been a shift in recent years toward the “marketingization of services” as nonprofits find themselves in competition with government, for-profits or even other nonprofits.

The idea that the proliferation of nonprofit organizations in the past decade or so has caused overlapping and competition and may then result in partnerships or mergers was one emphasized by Thomas McLaughlin, a national nonprofit management consultant with Grant Thornton in Boston.

“Finally there’s strengthened interest in looking at mergers as a valid strategies option, which I think (nonprofits) should have been doing,” McLaughlin said. “I just came from talking to two organizations in Boston that are looking at merging, and it not just high-profile organizations that are doing it. I drive around town and see small organizations that are joining forces somehow. Merger activity is going on at the local level, and what we see is a national reflection of that.”

Masaoka disputed the notion of a huge growth in the number of nonprofits, at least in California, saying that perception may not match reality.

She also saw a silver lining in the apparent duplication of services.

“When somebody is starting a new organization that seems to be the same as one that is established, that should be a wakeup call to us,” she said. “We want to see an ‘ecology’ in the nonprofit sector – no forest is healthy if it only has redwood trees. We need that variety in the sector.”

Tempel echoed the idea of variety that can bring nonprofits into existence.

“The continuing formation of nonprofits is part of the pluralism of our society,” he said. “People have a concern, and they try to deal with what concerns them.”

McLaughlin and Guillot both stressed the changes in the environment over the past few years, as government has retreated from broad-based support of nonprofits and individual and foundation support has shifted toward larger organizations, such as universities, and away from smaller organizations. This has resulted in many organizations taking a business-model approach, relying on fees for services. This has had mixed results.

“I’m not sure nonprofits have leaped into fee for service and entrepreneurship as they have been pushed into it,” McLaughlin said.

The picture is not entirely bleak, however. Guillot said that the two organizations he has been facilitating are having some success raising funds by relying on their strengths. They provide diversity training to local companies for a fee, and they have even provided such training to other nonprofits. This differs from the concept of charging a fee to individual recipients, many of whom do not have the means to pay for the services provided to them by nonprofits.

NonProfit  Times
The Leading Business Publication For Nonprofit Management