Nonprofit mergers: Putting the best foot forward

The media release was upbeat and positive, but given the economy it figured that there was probably more to the story. Here’s how it read: “We are pleased to announce that COMPAS and Young Audiences of Minnesota merged on July 1, 2009, forming Minnesota’s largest ‘one-stop-shop’ for teachers, schools and communities. …  COMPAS will be even more effective in reaching people of all ages across Minnesota.”

It put its best foot forward, but a tough economy and budget cuts are also part of the story. According to the Minnesota Attorney General’s charities website which summarizes nonprofit tax returns, Young Audiences’ revenues were dropping in recent years. It lost money in 2007 and 2008. Its year-end fund balance fell from $176,741 in 2005 to less than $25,000 by June 30, 2008, about a two-week cushion.

Bob Olsen, executive director of COMPAS, said finances were a merger factor. Toward the end, Young Audiences was down to a full-time employee, a contracted executive director, “and a boatload of incredibly dedicated volunteers,” he said.

Both organizations have long histories: COMPAS is 40 years old and Young Audiences — now a COMPAS program — is 55. Both promote arts education, including artist-in-residence programs and school-based performances. The merger combines complementary programs.

However, a year ago when the merger talks started, the two organizations had 13 or 14 employees combined, Olsen said. Budget cuts have trimmed the merged organization to nine staff members. This spring, both COMPAS and Young Audiences saw programming drop 12 to 15 percent because schools and Parent Teacher Associations couldn’t afford the program costs.

“Initially, when we agreed to merge with Young Audiences, we were hoping to ramp up the number of employees we had to accommodate some of the activities they were doing,” Olsen said. “We simply haven’t made those hires. We are keeping it lean.”

Several things helped the merger. Both organizations had interim executive directors, making succession plans easier. Active boards drove the process.

While money was part of the decision, Olsen said the starting point was looking at what was best for kids, teachers and artists. The new structure creates more efficiency and more tentacles into the community. “It will make us a stronger organization,” he said.

MAP for Nonprofits: Free book on mergers
MAP for Nonprofits just published a new how-to book on nonprofit mergers, called “Merge Minnesota: Nonprofit merger as an opportunity for survival and growth.” It’s free; call Ron Reed, Project Redesign, at 651-393-2160. Project Redesign provides free consults and, for a fee, facilitates mergers.

Reed was happy to provide contacts for a couple of happy clients. One was Russ Salgy, executive director of Duluth’s Copeland Community Center. It plans to merge with Valley Youth Center on or before Sept. 30.

They are both small, independent youth centers, with combined budgets of about $400,000, Salgy said. Downsizing administration was not easy, but the merger will save $70,000 by eliminating duplicate executive directors, bookkeeping expenses, insurance and audits. The combined centers plan to use the savings for direct service, hiring AmeriCorps staff to work with youth.

“Our on-line staff will double or triple at each site,” Salgy said.

The centers worried that funders might view the merger cost savings as an opportunity to reduce their contributions, he said. To prevent this, center leaders sought commitments from funders early in the process.

MAP is also working on merger discussions between Functional Industries in Buffalo, which runs mental health, community employment and school-to work programs, and The Dells Place, which provides housing for disabled adults.

Functional Industries President Rod Pederson said the two organizations already have a history of working together. Functional Industries had a $4.6 million annual operation in 2008. For the past three years, it has contracted to do payroll, human resources and other business work for the smaller Dells Place.

The merger could provide some economies of scale, but it’s not about money, Pederson said. The merger (still in the discussion stages) could provide more stability and opportunity for clients.

I’m guessing that these two merger examples are smoother than most.

Reed said MAP is getting at least two inquiries a week about mergers, but the nature of the calls is changing. When Project Redesign started last year, organizations had already identified partner agencies. Now organizations want help finding a match.

“We are also developing what we are calling ‘willing partners,’ ” he said. “I have a group of about 20 agencies that are saying, ‘If you find someone who is interested that meets our mission and values, we would be interested in talking to them.’ “

The GOOB report
About six months ago, I talked to Carol Lukas, president of Fieldstone Alliance, and Tom Triplett, principal consultant about a wide range of issues. Among other things, they told me about the “Nonprofit Decline and Dissolution Report Project: Going out of business, why, when & how to do it gracefully.” (They referred to it as the GOOB report, for Going out of business.)

The report said that as staff began to help organizations evaluate merger and dissolution options, they found several recurring issues, which ultimately prompted the study:

• Executives were experiencing tremendous stress, shame and isolation.

• Boards had become paralyzed and indecisive.

• Staff was anxious and uncertain about their future and worried about the future of their clients.

• A lack of reference materials to help an organization think about the dissolution process.

Sound familiar? That was written in 1991 by Wilder Publishing and Wilder Consulting, which later became Fieldstone. The GOOB report is available on line for free here. (PDF)