How to look at NGO mergers

Raj Kumar, president and founder of Devex. The challenge for NGOs today, he writes, is to see mergers as a way to get stronger in terms of capacity and service, not as a sign of failure. Photo by: Devex

Fundraising is hard, and in a world where upstart social enterprises can raise millions overnight using social media, it can feel like a liability to be an old and venerable NGO. Of course there are always contracts and grants from traditional aid agencies, but between austerity measures (including government shutdowns) and increasingly global competition, that’s not easy either. So what’s an NGO executive to do?

There was a one-word answer that I heard from several NGO executives at the Clinton Global Initiative some days back: “merger.” But mergers are no panacea, and these NGO executives know it. In fact, those who are pushing NGO executives to consider mergers may be thinking about them all wrong.

We recently reviewed 11 NGO mergers that took place over the past several years. What unites all of them? They were a response to weakness.

The storyline in almost every case was pretty clear: An NGO gets into financial trouble and seeks a larger and more financially stable NGO to take it over. Sometimes, it’s a real merger, but often it’s just a face-saving move and soon enough, the weaker NGO brand and operations fade away.

Mergers in the private sector aren’t easy either and many fail, but they tend to come from a very different place: a position of strength, not weakness. Companies that are growing become targets for takeover by larger companies that may not be growing as fast or simply want to expand and can’t do it all alone. It’s a build versus buy equation.

The advantage of acquiring or merging because both organizations are strong and getting stronger is clear: Ideally, there’s new value added when they join up, and that value gets captured in earnings growth, dividends to shareholders, bonuses to executives, and the like. In the nonprofit space, of course, there should be a limit to how much importance can be placed on financial advantages for individuals. But if NGOs are to begin looking at mergers as something you do when you’re strong, then there is something to be learned from how corporate CEOs do it.

Most importantly, boards and executive teams should see mergers and acquisitions as a real option, even when everything is going well. They should be able to answer the question “why not?” when it comes to merging, instead of reflexively considering merging a kind of failure. In fact, NGO executives should have a written merger plan  a set of criteria under which they would consider merging or acquiring another NGO from a position of strength.

Concerns on the part of boards and executives could be allayed, at least somewhat, through advance planning: Employment contracts that let them get a modest severance if their job is made redundant by a merger might help financially, and getting to remain on an advisory board or in some other honorary capacity if their board is dissolved as part of a merger might help personally.

But the main reason NGOs would do well to consider a new approach to mergers is that the global development sector is undergoing a period of dramatic change. Successful startup social enterprises like Charity:Water are showing that innovation is possible in this space. (Charity:Water in particular is even talking about expanding into other sectors.) So, more established NGOs could begin innovating too considering things like not-for-profit holding companies that manage multiple NGO brands, flagship donors brought on specifically to fund NGO infrastructure as part of a merger plan, and using mergers and acquisitions as a way to shift more organizational decision-making and staff to the developing world.

Much of the reluctance to merge when it comes to NGOs has to do with brand, mission and executive roles. This was the case when SmileTrain and Operation Smile tried, but failed, to merge in 2011. Building an NGO is so hard to do that it can become an end in itself. But a clear-eyed view of mission should allow for NGOs to see mergers as a way to do more, not just as a way to wind down when times are tough.

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About the author

  • Raj kumardevex

    Raj Kumar

    Raj Kumar is the founding president and editor-in-chief at Devex, the media platform for the global development community. He is a media leader and former humanitarian council chair for the World Economic Forum and a member of the Council on Foreign Relations. His work has led him to more than 50 countries, where he has had the honor to meet many of the aid workers and development professionals who make up the Devex community.