Four questions not-for-profit boards need to ask when considering a merger

Could merging with another organisation transform your impact? Irmke Bonte, Consulting Director, Social Ventures Australia (SVA) outlines how not-for-profit boards can assess whether a merger is the right move.

Presented by Social Ventures Australia

We are often asked by not-for-profits (NFPs) whether they should consider a merger. Our answer is yes. Mergers come with risks, but can offer enormous benefits when well-executed and should feature as a standard part of strategic planning.

To know whether pursuing a merger is the right move, directors should consider four questions, taking into account the current context as well as possible future scenarios, including a more consolidated and highly regulated sector.

1. What impact does the organisation create?

The overriding principle governing all trade-offs and decision-making is whether the merger will increase the organisation’s impact. Start by clarifying the organisation’s impact, its distinctive capabilities and how it compares to its peers.

2. How can a merger increase impact?

Mergers benefit organisations in three ways:

Enhanced capability and capacity: Scaling models, boosting strengths and expanding knowledge through shared expertise.

Improved financial health: Achieving economies of scale, reducing duplication and pooling resources, savings on procurement and technological investments. For example, one of the reasons for House with No Steps and The Tipping Foundation merging into Aruma was because they could invest and share resources to ensure quality and consistency of service delivery.

Stronger advocacy position: A larger, unified entity can amplify its voice with funders and get a seat at the table in critical policy and advocacy discussions. For example, the merger of three Baptist-affiliated organisations into BaptistCare was a necessary step to amplify advocacy and champion nationwide sustainable solutions for their clients and the sector.

3. How do alternatives compare?

A merger isn’t the only path. Directors should also explore alternative strategies. This could include boosting internal efficiencies, focusing more on core strengths, divesting non-core activities or forming other partnerships, associations or alliances.

4. What would it take to successfully execute?

Successful mergers require investments and commitment, including:

• Substantial financial investment - from preparation through to integration.
• Dedicated leadership and capabilities - often necessitating external advisers.
• Strong commitment - from boards and CEOs willing to invest their time and put the mission above personal roles or history.

Before proceeding with a merger, boards must consider if they have the resources to succeed and whether the merger would genuinely increase the impact of the organisation. In this way, directors can ground merger decisions in strategy and purpose, maximising meaningful, long-term benefits for the communities they serve.

Discover more expert advice on organisational mergers.