Exploring mergers: A complicated but necessary process

It was recently reported that the boards of MercyFirst and Martin De Porres School decided to explore the possibility of a merger.

Mergers, like marriage, should not be entered lightly. They significantly affect the lives of all those involved – yours, the clients you work with (or person you partner with) and the staff who do the work. In addition, you must be sensitive to the “in-laws” that are involved with both parties – such as public agencies you contract with, donors and friends who support you.

The goal and hope are that all involved are affected in a very positive way with a synergy that far outweighs any changes that both organizations will inevitably go through. Strengthening your mission by providing more comprehensive and integrated services is certainly the driving force. Having been involved in this process several times, most recently at MercyFirst after it was formed by a merger in 2003, there is much to be considered if the primary goals are to be achieved.

Before either organization can make a good business decision regarding a merger, they must go through a due diligence process. Here are some of the key issues need to be examined so both organizations understand the ramifications of a merger:

• You need to do a salary comparison for comparable positions. If one agency pays better for similar positions than the other, how will you reconcile these differences going forward?
• How do employee benefits compare when it comes to vacation time and sick time? How much do employees pay for their health insurance and if one agency’s plan is better than the other how do you resolve this? What payroll system will be used? Which insurance policies will be used to provide liability, property and professional coverage for the merged agency, and how do you make this determination?
• What banking relationships exist and which will be best for the merged organization?
• How will leases be handled and how best to manage existing contracts with public agencies to provide services?
• Does either nonprofit have significant lawsuits that must be considered in making this decision?
• How are the finances of both agencies?
• How will the merged organization be structured and who will report to whom?
• How will a combined board of trustees be structured?
• Are there alternatives for coming together other than a legal merger of two corporations?

Anticipate having to consult with your attorney, audit firm and insurance broker to help resolve these issues, and prepare for the costs that go with this.

Throughout all this, the best advice is to be transparent with everyone involved:

• Let staff know first what you are doing and keep them apprised of developments on a regular basis.
• Get the word out to public agencies you work with and your supporters and explain to them why you are undertaking this major initiative. Ask for their feedback and make sure you have their guidance before finalizing any critical issues they have a stake in.
• Be open to good ideas and suggestions that are raised that you did not think of. Doing all this will go a long way in maintaining their support and confidence when there is the inevitable glitch that occurs with some issue where you did not fully think through all the ramifications.

While you must stay focused on the major reasons why you decided to explore a merger in the first place, make sure you pay attention to the little details that affect everyone involved.

Merger, like marriage, results in a larger and more complex organization, but if everything goes well, it will also be one more suited to continue your mission into the future. If you decide to go forward and succeed, be sure to mark the occasion with an event that celebrates a new beginning for all involved.

Gerard McCaffery is the president and CEO of MercyFirst, which provides a range of child welfare, juvenile justice and mental health programs for children and families in New York City and Long Island.