In August I wrote a blog entry about three nonprofits in Maui, Hawaii who came together through a merger announced in June: Maui Youth & Family Services, Aloha House, and Malama Family Recovery Center. I felt it was a distinctive merger because the groups decided to keep their separate names, which I had not seen done very often. After writing about the merger, I was contacted by Tim Murphy, the instigator for the merger and the former Interim CEO for Maui Youth & Family Services, who read my article. I asked Tim if I could interview him to get more details about the merger itself, which he agreed to do for SSIR.
Mission Plus Strategy: How did the idea of a merger get planted in your mind in the first place?
Tim: I was brought in as a CEO turn-around specialist for a financially struggling social service nonprofit that had been in existence for over 28 years. It had large cash reserves but it had been in a downward spiral for a few years. In addition to the turn-around aspect, I was to help the Board find a permanent CEO. (I was not going to be a candidate.) Within a few months, I knew that merging or a strategic partner should be considered as there were several struggling nonprofits competing for the same business. I conducted a CEO search and at the same time pursued the merger option.
Mission Plus Strategy: You were an interim CEO at MYFS. Did the fact that your nonprofit had a permanent vacancy in the CEO position contribute to your board’s decision to go along with the merger?
Tim: Well, yes and no. My board hoped I would stay (after all, it is Maui!). Had I agreed to stay on as CEO, the merger might not have happened; however, I would have brought up the idea of some type of strategic partnership as a way of reducing administrative costs. Hawaii (like many communities) has a plethora of small ($1 million revenue) nonprofits that all have EDs, HR directors, finance officers burning through 35 percent of administrative costs when they could share these vital services between agencies. The merger discussion which I drove gave them options to consider.
Mission Plus Strategy: So how did you then engage your board members in the idea of a merger?
Tim: It was a difficult sell to the board. It was new thinking. But because we had been successful in turning around the company ($100,000 monthly losses to $40,000 above cost) there was strong trust between the board and myself. The selling points were all around improving service to the consumer and offering a continuum of care in one agency. It took about six months (maybe a bit more for others), but they all came around to supporting the idea and when the final votes were cast it was unanimous from all three boards.
Mission Plus Strategy: How did you engage your partner agencies in the idea of a merger?
Tim: I first approached the one larger partner for advice as I was looking at another nonprofit in the community. He suggested that I look at him if I was serious. We “dated” for a few months to see if we were compatible before we approached our respective boards with the idea. Once we were comfortable with each other (as the CEOs), we looked for grant money to help explore the idea. We received a $30,000 grant to explore a strategic partnership. This helped us ease into the discussion.
Mission Plus Strategy: Did you get any push-back from anyone?
Tim: Our state government contractors were a bit uneasy at first about the merger because they believed keeping us apart was better for them from a competitive bid standpoint. We had to convince them of the benefits to the consumer (that were obvious to us) but which they were not considering. It took several months of persuasion to get them to support the merger and in fact they are still being “massaged” today. We also were concerned about how our colleagues in the nonprofit world would react to there suddenly being a bigger organization. This took one-on-one face time with colleagues to address.
Mission Plus Strategy: How did you decide who would become the CEO and the board chair?
Tim: Great question. Since I was the CEO of one of the two larger agencies and was not going to be in contention for the CEO position of the merged organization (the third agency was quite small and already had a management service agreement with the second entity), it was clear that the new CEO would be from the second agency. With that in mind, we then negotiated for the board chair of the new organization to come from my agency. This was both a political process and somewhat straightforward. I knew the CEO and in fact had approached him with the idea. I supported his role to my board. He supported the board chair decision. The other board leadership positions were split between the three boards.
Mission Plus Strategy: When did the idea come to you to keep the three separate names?
Tim: Keeping the three names was part of the strategy from the beginning and proved to be very helpful in bringing our boards along as it retained their identification with the agency that they had been supporting for years. All three agencies have strong name recognition. We will eventually be organized under one corporate name but will keep the three individual names as DBAs (Doing Business As). This was an important consideration for staff retention, and for our consumers as well.
Mission Plus Strategy: Tim, thanks for taking the time to shed more light on this interesting merger. If readers are interested in contacting Tim, you may do so through my Web site: www.MissionPlusStrategy.com. Have you been involved in a merger? Write to me about your experiences at the address above, or post a note to this blog below.
Jean Butzen, a consultant with
Mission Plus Strategy, specializes in mergers and alliances in the Chicago area.