In partnership with Bates Wells & Braithwaite.
Supported by Barrow Cadbury Trust.
This page is drawn from Thinking about Merger, edition three. Full references can be found at the bottom of the page.
A merger is one of the most challenging steps an organisation can make. It can create tensions as well as excitement, be the cause of much debate, and lead to permanent and irreversible change.
Drawing from previous research and experience (our own and that of others) this section brings together a number of things to consider when thinking about a merger.
Proceed with Caution!
A merger may not be the only option
- Informal alliance: Based on good relationships and understanding, may be written but not contractual
- Contract-based alliance: A relationship underpinned by contract – sets out objectives, respective roles, cost-sharing and charging arrangements
- Joint venture: Parties establish a legal entity which they jointly own and control, for the purpose of undertaking specified functions
- Group structure: Parties agree to be controlled by a holding entity, which owns or controls the parties (subsidiaries can keep original identity)
- Merger: Parties merge on whatever basis is agreed, creating a new entity (relative equality between parties) or by enlarging an existing entity (a takeover)
- Last resort effort to survive in response to external pressures
- A strategy for dealing with an environment of uncertainty and scarce resources
- A response to pressures arising from commissioning and contracting
- A response to the influence of funding bodies
One or more voluntary organisations passing assets to another and then dissolving
Two or more charities passing their assets to a new voluntary organisation and then dissolving
Reasons for a Merger
- Meeting users’ needs more effectively
- Influencing the external environment
- Having a history of collaboration
- The vulnerability of smallness
- Financial pressures
- Governance issues
However, these are not mutually exclusive and can occur in combination.
Meeting users’ needs more effectively
The desire to meet users' needs more effectively has been a strong driver in several mergers. By combining the skills and reach of two organisations it can be possible to deliver more benefits to beneficiaries.
Influencing the external
A desire for voluntary organisations to have greater influence on their external environment – particularly on funders and policy-makers – has been a recurring theme in our research. The merger of voluntary organisations concerned with slightly different aspects of work with a single client group, can create an enhanced evidence base for policy advocacy.
Having a history of collaboration
Our research suggests very few organisations actively go out to seek a merger partner, although they may compare the merits of potential partners. More usually, the idea of merger springs from existing contacts and joint work with organisations building up towards closer collaborative working, a shared understanding of the needs of a client group and the development of trust.
The vulnerability of smallness
Smaller organisations can feel vulnerable in a highly competitive and volatile environment. A lack of organisational infrastructure may make it difficult for them to provide, fundraise and market for their primary activities. Merger could be viewed as a way to continue providing a service to their client group with more resources and a less fragile infrastructure.
Funding-related issues have a bearing on many merger decisions. Some public funders may try to make savings by funding a smaller number of organisations in their area, applying pressure to collaborate.
Governance issues can also be drivers towards merger, e.g. lack of strategic engagement or staff/trustee disagreements over future direction. Trustees of smaller voluntary organisations often have to volunteer large amounts of their time, which may become too much to cope with despite their high levels of commitment to the organisation.
- To meet needs more effectively
- To have greater influence on the external environment
- To expand the range of services provided
- To retain something – rather than the gradual deterioration of everything
In practice it may be for a combination of factors.
Planning and legal
‘A merger is a challenging mix of rational processes (meetings, plans and decisions) and politics (emotions, feelings of loss, shifts in power and unforeseen events).'
Identifying the perspectives of key people inside the organisations:
- The drivers towards merger
- The overarching purpose and vision of a possible merger
- Broad issues of organisational fit
- Any obvious deal breakers
- The level of commitment among boards and management teams to take discussions to the next stage
No amount of planning and budgeting will avoid the feelings of loss, disquiet, upheaval, excitement and hope. Careful preparation can reduce anxieties that may arise. It usually requires the people involved to make a leap of faith. Decision-making needs to be grounded in dialogue, reflection and debate, all of which can build trust.
- Completing initial consultations with key stakeholders
- Reaching consensus and formal agreement on a vision and outline model for the new organisation
- Exploring how more obvious power issues might be addressed – for example, how to decide the roles of the Chair and Chief Executive
- Agreeing timescales and a process for subsequent stages
- May conclude with boards reaffirming their initial decision to proceed to merger, possibly by drawing up a draft heads of agreement document
Planning & legal
The next stage is about completing formal and strategic preparations for merger: a due diligence exercise. Planning beyond financial and human resources includes addressing issues related to:
- Quality, performance and management
- Preparing transfer arrangements prior to the formal and final decision to merge
- The necessary legal and financial transactions that this will involve
The next stage is to realise the new organisation's vision and strategy. It may take years to achieve full integration of staff, systems and procedures, although the length of time will depend on the size and complexity of the merger partners. It is a good idea to regard the post-merger integration period as an ongoing process of change that requires leadership, resources and structures.
An inexact science that requires a leap of faith.”
The following factors can make a merger more likely to succeed:
- A shared vision for the merged organisation
- Strategic and organisational fit
- Identifying and addressing deal breakers upstream
- Leadership and adequate resources
- Recognising human factors; handling cultural differences sensitively
- Good communications
- Clear (and inclusive) plans for the merger process and beyond
- Use of external advisers
Vision first, structure second; form follows function.”
There will always be an element in the process that leads individual organisations to full legal merger, which is specific to that organisation and may often come from a feeling of whether it is the right thing to do, rather than from a single, identifiable, rational reason. Organisations need to identify the key issues to be considered, the key questions to be asked and how the decision to merge (or not) can be adequately grounded and informed.”
References referred to in the IVAR publication Thinking about Merger, edition three
Office of the Third Sector (2009) Real help for communities: Volunteers, charities and social enterprises, London: Office of the Third Sector
Cabinet Office (2010) Building a stronger civil society, Cabinet Office: London
Cabinet Office (2010) Supporting a stronger civil society, Cabinet Office: London
IVAR (2011) Story of a merger: DTA and bassac create Locality, IVAR: London
IVAR (2011) Merger as strategy: the experience of TACT, IVAR: London
Charities Act (2006) p 50. Available at www.legislation.gov.uk
Moran, R. et al (2009) ‘Assuming the spirit of the whole’: Small and large organisations engaged in merger, paper presented at the Association for Research on Nonprofit Organisations and Voluntary Action (ARNOVA) conference, 2009
NAVCA (2007) Anatomy of a merger – the Cumbria experience, Sheffield: NAVCA
Third Sector (2007) ‘Mergers are on the rise, so charities should know the implications’, Third Sector, 5 September 2007, p 12
Harris, M. & Hutchison, R. (2001) Success factors in nonprofit mergers: lessons from HIV/ AIDS agencies in the UK, paper presented at the Association for Research on Nonprofit Organisations and Voluntary Action (ARNOVA) conference, 2001
Charity Commission (2007) An evaluation of the merger that created Volunteering England, Liverpool: Charity Commission
Harris, M. et al (2002) ‘Merger in the British voluntary sector: The example of HIV/AIDS agencies’, Social Policy and Administration, 36 (3): 291-305
Basinger, N.W. and Peterson, J.R. (2008)
‘Where you stand depends on where you sit: Participation and reactions to change’, Nonprofit Management and Leadership, 19 (2): 243-257
Campbell, D.A. (2008)
‘Getting to yes … or no: Nonprofit decision making and interorganisational restructuring’, Nonprofit Management and Leadership, 19 (2): 221-241
La Piana, D. and Hayes, M. (2005)
‘Mergers and acquisitions in the nonprofit sector: Managing merger negotiations and integration’, Strategy and Leadership, 33 (2): 11-17
Levine, S. and White, P. (1961)
‘Exchange as a conceptual framework for the study of interorganizational relationships’, Administrative Science Quarterly, 5 (4): 583-601
Mullins, D. (1999)
Managing ambiguity: merger activity in the nonprofit housing sector’, International Journal of Nonprofit and Voluntary Sector Marketing, 4 (4): 349-364
Pietroburgo, J. and Wernet, S.P. (2007)
Investigation of association mergers: Report to The William E. Smith Institution for Association Research, Chicago: SmithBucklin Corporation
Singer, M.I. and Yankey, J.A. (1991)
‘Organizational metamorphosis: A study of eighteen nonprofit mergers, acquisitions and consolidations’, Nonprofit Management and Leadership, 1 (4): 357-369
Toepler, S., Seitchek, C. and Cameron, T. (2004)
Small organisation mergers in arts and humanities’, Nonprofit Management and Leadership, 15 (1): 95-115
Wernet, S. and Jones, S. (1992)
‘Merger and acquisition activity between nonprofit social service organizations: A case study’, Nonprofit and Voluntary Sector Quarterly, 21 (4): 367-380
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