In the business world, it is not unusual for companies to be merged, bought and traded. Sometimes, this is how companies survive, albeit in a different incarnation. Tshikululu’s CEO, Tracey Henry, considers that when NPOs are struggling financially, collaboration to the point of consolidation may well be an alternative to closure.
When the financial crisis of 2008 hit, we anticipated an immediate and significant negative effect on South Africa’s (SA) nonprofit sector, that vital part of community development. Yet, while a few nonprofit organisations (NPOs) immediately felt the effects of diminished funding, many have weathered the storm over the past two years, often by dipping into reserves carefully built up over many years, and by scaling back their work.
The wolf is now much closer to the door and in the past year we noted a significant increase in the financial distress of NPOs, increasing retrenchments and even closures. So while the 2008 recession has in some ways been slow to show its full effect, it has now hit home and in all likelihood will continue to hamper growth in developmental education, healthcare and welfare this year as the world economy braces for a longer and deeper recession.
Many NPOs have therefore been considering their sustainability options over the past few years. These have ranged from new fundraising ventures and expanding the scope of services being offered, to focusing on new areas such as enterprise development. Many expansion plans have been curtailed.
What remains evident is that funding is tight, from both local and international donors, and that it cannot be business as usual. One thing not considered often enough is that of NPO mergers and acquisitions (M&As), an idea whose time has surely come.
Indeed, the idea of collaboration in the nonprofit sector has been a topic of discussion for many years. Some organisations have succeeded in sharing knowledge and best practice, although brand identity, funding relationships and intellectual property are often jealously guarded.
Now, the option of M&As needs to be considered not only in response to financial constraints but, more importantly, as a way to harness scarce resources and decades of institutional knowledge and leadership to collectively advance the needs of society.
Ordinarily, M&As are often only considered when economies of scale create a compelling business case, or when organisations are facing tough economic conditions, as is the case now. However, looking beyond the numbers, M&As also provide a real opportunity for organisations operating in the same sector to come together and to strengthen and expand their areas of expertise in ways that increase their overall efficiency.
Mergers are, of course, not walks in the park, nor always the panacea to financial woes. They require careful consideration by the boards of NPOs, including discussions about organisational philosophy, reputation, operating efficiency and governance structures. Often the biggest challenges of M&As are the merging of organisational cultures and personalities, never mind leadership challenges. However, in a sector that has scarce skills and where the pursuit of leadership expertise is continuing, M&As provide an opportunity to strengthen and keep talent in the nonprofit sector.
M&As should not only be considered at the level of individual organisations but also in the interest of society at large and in view of corporate SA’s real desire to support effective social interventions to scale.
As such, when faced with NPO M&As, corporate funders need to become heavily engaged, even considering funding to facilitate effective M&As during the planning phase and after the merge.
How NPOs can further their visions, missions and values must be at the heart of any M&A discussion, to the ultimate benefit of their beneficiaries. While difficult discussions about staffing, brand identity and leadership cannot be avoided, the alternative of NPO closures should concentrate the mind like little else.