The overall process of a merger or acquisition is fairly standard, whether for-profit or nonprofit and whether a merger or acquisition is in play. Some of the key differences and social enterprise-specific considerations are outlined in the previous section.
The process generally occurs in four stages, with key go/no-go decisions at each stage:
- Incubation – decide on goal to achieve, assess potential target partners and appetite for risk. Decide whether or not to pursue M&A exploration
- Exploration – set goals specifically for M&A and create plan for pursuing, including negotiation terms
- Negotiation – source and research potential merger/acquisition targets; negotiate terms with top prospects; make final decision on merger/acquisition
- Integration – plan for and implement post-merger plan
The chart below outlines the key roles and to-dos of the major stakeholder groups in a merger or acquisition process.
Based on experience across both for-profit and nonprofit M&A, there are several important success factors to keep in mind when pursuing a merger or acquisition in either sector, particularly for social enterprise:
- Trust – is often what closes the deal
- “There will come a time when you can’t analyze anymore and you just have to take a leap of faith. The organizations that trust each other can say, ‘Let’s give it a shot and work out the details as it comes up.’ The ones that don’t can drag on the negotiations forever and still walk away.” Heather Gowdy, LaPiana Consulting
- Communication – early, often, consistently
- Develop a communication plan as early on in the process as possible. Create statements for both internal and external communication; train deal insiders to stay on message
- Deals can take a long time to close. If you begin communicating early, people will be ready to accept it by the time it becomes reality
- The best communication plan has statements for both success and failure scenarios
- Follow-through – the trajectory of future value creation is very much set during integration
- 70% of deals that fail to create value can be traced back to poor integration
- “Getting a deal to close is in some sense, the easy part. HR is the hard part and that comes mostly after the deal is done. Merging the cultures, the programs and the staff is really the challenge.” Heather Gowdy, LaPiana Consulting
Assessment of each strategic option – an organization and its board should be able to answer the following questions for every option (merger, acquisition) being considered.
Degree of Fit
“Degree of Fit” Checklist used to determine potential merger partner’s attractiveness – applies to both for-profits and nonprofits (adapted from Mandel Center for Nonprofit Organizations):