Resisting the Pressure to Merger

A couple of years ago, I wrote a post here about when it makes sense to take an existing partnership and explore a merger. In that posting, I wrote that

the reality is that it is increasingly difficult for small organizations (budgets under $750,000) to operate successfully, and create sustainable funding. As much as I love small, grassroots organizations, sometimes they can better serve their communities as part of a mid-sized agency.

Today, that is truer than ever, and many of the small agencies that I love so much are in major trouble as their funding dries up, while clients are still lining up at their doors. Also true right now is that there is growing pressure on these small organizations to merge coming from the funding community (foundations and local governments).

In the long term, many of the mergers they envision may indeed make sense. But the savings they imagine will not occur anywhere near soon enough to be a solution to this year's budget problems. In fact, to make mergers truly work for the betterment of the organizations (and their clients), will actually require an additional investment for FY 2009-10 - an investment that doesn't seem likely to come from any of the sources promoting the mergers.

"Quick and easy" mergers really only exist when one of the partners is in such deep trouble that their only other option is shutting their doors and the other partner has plenty of resources to invest in salvaging the best of what the defunct organization has to offer.

When two small- to mid-sized organizations, who are each struggling but surviving, come to the table together, there's much to discuss and agree upon before any mergers occur. From deciding on what name the resulting organization will be called, to which Executive Director stays on (and what to do with the one that doesn't), to how to merge the boards (and elect new officers), to going through and reconciling each line of the two different sets of by-laws, this is a process that can take at least several months to over a year to settle. And once that's done, it's time for the lawyers to review what's been decided and put it into a legal form.

Here's a sample, simplified merger budget:



As you can see, while mergers may save money in the long run (and even that is often questionable if the deposed ED is needed to stay on to manage a second site), there are considerable upfront costs, and a major time investment required to make them work. And, bringing us back to the start of this post, the partnership has to make sense.