Nonprofit Organizations Seek Strength in Mergers

Article excerpt

When representatives from some 75 nonprofits convene in Boston Tuesday, they'll tackle a subject that was seldom discussed 10 years ago because it smacked too much of corporate America.

The notion of mergers among nonprofit organizations "used to be an 'm-word' I didn't dare say in public," says Thomas McLaughlin, a management consultant to nonprofits at Grant Thornton in Boston.

But now consultants say mergers are shedding their stigma and becoming downright alluring for nonprofits across the country. Having seen internal consolidations succeed for such recognizable groups as the Girl Scouts and the American Lung Association, nonprofits of various shapes and sizes are testing the waters for possible mergers and are often taking the plunge.

"We have noticed a marked increase in both interest and activity" related to strategic mergers, says Bob Harrington, senior manager at La Piana Associates, in Emeryville, Calif., a management consulting firm with a nonprofit specialty. He says the number of inquiries from nonprofits eyeing a merger has increased 50 percent over the past two years.

Accelerating merger activity is tough to quantify since the Internal Revenue Service doesn't track mergers per se, according to Linda Lampkin, director of the Urban Institute's National Center for Charitable Statistics. But in tracking this universe of 1.3 million nonprofits, including some 80,000 to 90,000 new ones created each year, she concludes that mergers and collaborations are "much more common" than they were a decade ago.

Mergers are increasingly happening among regional organizations that stand to gain from new strategic positioning, Mr. Harrington says. In April, for instance, the debt-saddled Ulster Performing Arts Center (UPAC) in Kingston, N.Y., merged with Poughkeepsie's Bardavon Opera House, which needed the extra space afforded by the 1,500-seat UPAC facility.

Another example: In November, two of California's oldest child- welfare organizations - Hathaway Children and Family Services and The Sycamores - stopped competing for funding and merged to become the largest private mental-health and welfare agency in Los Angeles County.

Funders seem to be playing a key role in the merger mania. In a time of shrinking federal funding for human services and intense competition for grants of all types, Ms. Lampkin says, private and public benefactors alike are encouraging efficiencies and economies of scale.

But, she notes, bigger isn't always better or more efficient.

"Sometimes it's a forced collaboration [to appease benefactors] that causes more expenditure of funds," Lampkin explains. "Sometimes nonprofits feel it's more costly to collaborate because it takes more time to have meetings, and figure out who's going to do what, and to get over the rough spots when you don't have exactly the same ideas about how to do things. So it can be costly, the whole collaboration thing. …