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What Does It Take to Merge Nonprofits?

 

Ever since the economy began to deteriorate in late 2008, I’ve been hearing stories about how there was going to be a huge wave of consolidations, mergers, and acquisitions in the nonprofit sector. In fact, I have heard or read about very few. When it comes down to it, merging nonprofit organizations is usually quite complicated – with many board and management issues – and often doesn’t solve the economic issues at the heart of the matter.

Last Sunday my wife and I attended the viewing of a movie called “A Small Act.” It’s the true story of a woman living in Sweden, a Holocaust survivor of modest economic means, who made small monthly contributions to support the education of a high school student in Kenya who eventually becomes an important international aid organization executive. The movie reminds us that each person has the capacity to make a difference and transform a life.

The film’s showing was sponsored by two organizations: the Nomadic Kenyan Children’s Educational Fund (NKCEF) based in Virginia and the Kenya Education Fund (KEF) from New York. During the evening’s events I heard they are merging and so I wanted to learn more. Here are a few questions I asked Cathy Gorrell, NKCEF Board Member and one of the NKCEF Founders and Bradley Broder, Executive Director of KEF.

1) What prompted your organization to consider a merger?

Cathy (NKCEF): NKCEF had been a nonprofit for eight years and as a result of strategic planning we were exploring the possibility of hiring an executive director and a staff person on the ground in Kenya – all in order to better serve our scholarship recipients. One of our board members found the Kenya Education Fund (KEF) and identified it as an organization with the same mission as NKCEF. We contacted Brad Broder, the executive director of KEF, and after several meetings and many many conversations with Brad and his board members, we asked Brad if he would consider merging with the Nomadic Kenyan Children’s Education Fund (NKCEF). In many ways, it seemed like the obvious and right thing to do – we both had a mission to educate bright, motivated, poor high school students in Kenya. KEF had a strong executive director who travels to Kenya regularly and who lived in Kenya as a member of the Peace Corps. They also are a Kenyan NGO and have a staff person in Kenya. NKCEF had more organizational infrastructure and had been around a few years longer. Hogan Lovells, a large international law firm, accepted us as a pro bono client and we started the process of merging two years ago.

2) What has been the hardest part of undertaking the merger?

Brad (KEF): The merging of our two organizations’ operations was seamless due to the identical nature of our missions. However, with the KEF registered as a nonprofit in New York and the NKCEF registered in Virginia, the most difficult part of the merger was negotiating the complicated legal regulations surrounding nonprofit mergers for each state. Going on two years now, none of us anticipated the merger taking this long. In the interim, our two organizations have merged operations using a simple memorandum of understanding while we wait for the lawyers to wrap up the legal side of things. Our modest size has also made it easy our Board of Directors to vote and agree on new Board positions for the merged entity.

Cathy (NKCEF): I would agree with Brad’s comments and want to emphasize that the complexities of merging two organizations in two jurisdictions was extremely difficult, but fortunately, the lawyers were able expertly guide us through the process. While the lawyers were doing their part, we focused on our operations. We continue to find ways to improve our operations and to develop and refine procedures for dealing with various issues. This is time consuming, but time well spent because it makes our organization run more smoothly and our students ultimately benefit.

3) What will be the benefits of being together in one organization?

Brad (KEF): There are two major benefits to this merger: One is being able to scale up our operations in an efficient way. For example, prior to merging operations, each organization assisted roughly 200 high school students per year in Kenya. Together, we now fund 500 students, with a plan of reaching 1000 student per year in the next four years. Because we are a scholarship organization we are able to ramp up the number of beneficiaries without a commensurate rise in operational costs, which are relatively low in Kenya to begin with. The other benefit is the broadening of our donor base to include both the greater New York metropolitan area and the greater Washington DC region.

Cathy (NKCEF): Improving the economies of scale is critical to both organizations. Additionally, we are always looking for ways to help our students. For us, having honest, reliable, accountable staff on the ground in Kenya allows us to provide our students with additional support and the services that they need to be successful in high school – such as tutoring, workshops, text books, scientific calculators and eye glasses.

4.) Any advice to other nonprofit organizations that might be considering a merger?

Brad (KEF): I think the success and feasibility of a merger depends largely on the size of the two organizations and the ability of each to agree on a how best to carry forward the mission of the new entity. Our merger works because it combined an all-volunteer organization (NKCEF) with one with paid employees (KEF) so there was no need for demotions or layoffs. Bigger organizations might have bigger Board egos and employee redundancy issues to contend with, in which case an acquisition might be a better solution. Be ready to make sacrifices. But remember, a merger only makes sense if it improves your ability to fulfill your mission.

Cathy (NKCEF): Merging two organizations is more complicated and takes longer than you think. It is essential to have open communication and strong, experienced legal help. Stay focused and never lose track of your mission.


lindsay-nichols.jpgThe preceding is a guest blog post by Lindsay Nichols, Vice President of Marketing and Communications at America’s Charities, the leader in workplace giving and philanthropy. As a member of the organization’s senior leadership team, Lindsay guides and oversees the strategy and execution of all marketing and communications efforts with a major emphasis on strategy and tactics that support increased growth for the organization. Lindsay has been quoted in the New York Times, Wall Street Journal, Chronicle of Philanthropy, NonProfit Times, St. Louis Post-Dispatch, St. Louis Public Radio, Dallas Morning News, and more.

Topics: Nonprofit Leadership and Practice Nonprofits