Economic Woes Bring More Charities Together

The turbulent economy is creating new incentives for charities to cooperate. More organizations are starting to share fund-raising and marketing ideas, while others are considering merging, combining “back offices” to handle administrative duties, or other formal alliances.

“Five years ago, if we did a training on restructuring and mergers, you wouldn’t get a lot of people coming, and the people who came didn’t want anyone else to know that they were going to be there,” says Doug Sauer, chief executive of the New York Council of Nonprofits, in Albany, N.Y. Now, he says, “it’s almost become trendy.”

Nearly one in five charity leaders are looking at mergers and acquisitions as a way to ride out the recession, according to a poll of 117 executive directors conducted in November by the Bridgespan Group, a nonprofit consulting organization in Boston.

Waiting List

Across the country, community foundations, United Ways, and nonprofit associations are holding workshops to help charities learn about their options.

The Santa Fe Community Foundation invited executive directors of 50 local charities and their board chairmen to a daylong workshop that looked at a range of collaboration tactics.

Not only did leadership pairs from 47 of those organizations participate, but 20 other nonprofit officials who had heard about the training asked to be on the waiting list.

With so many charities open to the possibility of merging, William Foster, a partner at the Bridgespan Group, thinks this might be a unique window of opportunity.

“Even organizations that are in relatively strong shape right now should be thinking about this as a time where they may be able to have a stepped increase in their ability to expand and increase impact by identifying organizations that they might be able to effectively acquire,” he says.

No ‘Quick Solution’

But many management experts caution that mergers can be extremely difficult to pull together and are not the answer to many charities’ money woes.

“I’m worried it’s a quick solution that may actually not be a solution, that it may just make it harder for two organizations,” says Regina Birdsell, president of the Center for Nonprofit Management, in Los Angeles.

Whether a merger will lead to big cost savings varies case by case.

In August 2008, Habitat for Humanity San Francisco and Peninsula Habitat for Humanity merged to become Habitat for Humanity Greater San Francisco.

The merger allowed the organization to eliminate six open positions and move the 25 employees from the two groups into one office, which Phillip Kilbridge, the new group’s executive director, estimates will save the new group $425,000 this year and $500,000 annually in subsequent years.

The upfront costs of the merger — such as integrating the two organizations’ fund-raising databases, consultants’ fees, and a new Web site, business cards, and other marketing materials — were substantial, totaling $50,000 to $75,000, but the organization was able to spread them out over seven months.

For other charities that depend on specially trained employees to provide services to clients, the opportunity for cost savings might be more limited.

“The usual outcome of a corporate merger is massive layoffs, and that’s not something that happens in nonprofit mergers,” says David La Piana, a leading expert in nonprofit restructuring and president of La Piana Associates, a consulting company in Emeryville, Calif. “You don’t merge two human-services agencies and lay off half the social workers. That wouldn’t make any sense.”

Months of Planning

Charities that are considering a merger need to be realistic about how much time they will need to devote to the process, says Sarah A. Jones, chief executive of Emerge Center Against Domestic Abuse, a charity that was formed last year by the merger of two domestic-violence organizations in Tucson, Ariz.

She says mergers are like home-remodeling projects: People who take them on soon learn it will take three times as much effort as they expected.

Ms. Jones estimates that she spent at least half of her time, sometimes more, on the merger during the seven months the two groups were negotiating and then planning their union.

“Other things can’t get done,” says Ms. Jones. “Because the process takes so much time, something else will have to give.”

Examining the financial condition of a potential merger partner will take on even more importance with the economic outlook so grim, says Bob Harrington, head of consulting at La Piana Associates.

“There may be more situations than we’ve seen in the past where an organization that is having significant financial problems may not be able to merge its entire organization into another organization because it’s just not viable,” he says. The troubled group may end up “transferring a program into another organization and closing its doors.”

Given the complexity of mergers, nonprofit leaders are starting to explore other tactics for working together, such as shared back-office operations and joint programs.

But well-documented examples in the charity world are still rare, says Lois Savage, president of the Lodestar Foundation, a 10-year-old fund in Phoenix that supports nonprofit collaboration.

“There are so many stories about business mergers, about business collaborations,” she says, adding, “There just is not that counterpart in the nonprofit world.”

To change that, Lodestar announced that it was starting a new Collaboration Prize last year to promote the idea of charities working together to eliminate duplication of effort.

The first contest split its $250,000 prize this month between two recent mergers: the Museum of Nature & Science, in Dallas, and the YMCA & JCC of Greater Toledo.

The foundation received 644 entries. It is developing a Web site to share those examples and allow nonprofit leaders to discuss the challenges that collaborations present.

Two years ago, five social-service charities in Minneapolis created a new group, MACC CommonWealth Services, to provide finance, human-resources, and information-technology services for all five organizations. The joint effort has helped the groups cut costs even as they improved the quality of their operations.

Tony Wagner, president of Pillsbury United Communities, one of the founding groups, thinks that the recession will spur creative collaboration.

“On the one hand, there’s never enough time in a crisis,” he says. “On the other hand, that’s exactly the time to act. Even though I’m terribly worried about this economy, I also believe very strongly that this is the time to be bold.”

Caroline Preston contributed to this article.