Benevolent Takeovers

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We hear about mergers and acquisitions all the time in business news.  It almost seems as though private markets necessarily consolidate, a process that can help great companies achieve improved growth or operational efficiency.  Some of these deals are mutually beneficial arrangements that allow companies to achieve economies of scale and synergies (see HP-Compaq).  Many others represent attempts to diversify the product portfolio or extend the business model (see Apple-Lala).  And then there are the few that are hostile takeovers aimed at acquiring market share (see Kraft-Cadbury).

I’ve always felt there was a place for mergers and acquisitions in the non-profit world, where success is defined less by financial gain and more by developing effective, efficient solutions to pressing problems. One would assume that anyone truly seeking to solve problems would welcome convergences that would allow the best organizations to extend their reach and create more efficient impact. Yet the non-profit world is replete with anti-cooperative structures, despite the requisite non-compete proclamations. Organizations vie for the same talent. They fight for the same grants and funding. And even if they only care about the end result of eradicating the problem, they still face extinction-by-funders if their organizations are not playing some dominant role in the process. No matter what is said, we are not in this together.

Fortunately, there is hope. I am currently working on a consulting project for a non-profit organization that has given me an interesting task: find organizations to take over. The organization is engaged in services that are heavily financed by local government. The CEO, noting significant budget cuts now and in years to come, imagines that many similar organizations will be in danger of going under. I have been asked to identify those organizations and develop a plan for potential benevolent takeovers.

There is strong support for this idea. The Boston Consulting Group recently published a study that showed that the most successful mergers and acquisitions occur during periods of economic downturn. In times of crisis, many fundamentally strong companies enter periods of distress that threaten their sustainability, making them ripe for takeover. An acquiring organization can gain greater efficiency through operational synergies and economies of scale, as well as an opportunity to broaden their impact. The risk of inaction is letting a fundamentally strong organization fail.

There are barriers. Non-profit boards and founders are far more possessive about their organizations than their corporate counterparts. And finding the appropriate measures by which to identify suitable targets is always a challenge. Nonetheless, it will be very interesting.

I will chronicle this experience. Although I will not divulge specific information about any of the organizations, I will certainly share all lessons learned. Stay tuned.

Update: follow-ups here and here.

Posted on February 3rd 2010 in ideas

One Response to “Benevolent Takeovers”

  1. Mike Figura Says:

    I was on the board of a local affordable housing non-profit that was “competing” with another affordable housing non-profit in Asheville. It made sense to combine the two in order to reduce overhead, staff, and grant writing time. The two eventually merged, but it took near collapse of one of the non-profits before that happened. There was strong resistance to merging by the board (who felt that it would be a sign of defeat for the organization that folded) and by staff (who were scared about losing their jobs). It seems like those hurdles pose less of an obstacle in the for-profit world, since boards usually gain from mergers, even though staff sometimes get the shaft.

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