Nonprofit Merger: Connecting Due Diligence and Integration Planning

Due diligence and integration planning are two essential components of a successful nonprofit merger. Due diligence is the process of investigating and assessing the financial, legal, operational, and cultural condition of a potential merger partner. Aspects of a nonprofit organization that should be considered during due diligence include:

• Financial health and stability

• Legal and regulatory compliance

• Programmatic/service effectiveness

• Governance and management structure

• Culture and values

• Human resources

• Information technology systems

• Real estate and other assets

Integration planning is the process of developing a plan for combining the two nonprofit organizations' operations, staff, and cultures. 

Although due diligence and integration planning are often viewed as separate activities, they are actually closely connected. For example, if due diligence reveals that one of the organizations has significant financial problems, the integration plan will need to address how those problems will be resolved. Similarly, if due diligence reveals that the two organizations have very different cultures, the integration plan will need to address how those cultures will be integrated.

Connecting due diligence and integration planning can help to minimize disruptions to operations, ensure a smooth transition for staff and clients, and maximize the benefits of the merger. Here are some tips from our team of nonprofit consultants on how to better connect due diligence and integration planning in the nonprofit merger process:

• Start early. Don't wait until the merger is finalized to start thinking about integration planning. The sooner you start planning, the better prepared you will be to implement the merger smoothly and successfully.

• Form a cross-functional integration team. The integration team should include representatives from all areas of each organization, including finance, operations, technology, marketing, and human resources. This team will be responsible for developing and implementing the integration plan.

• Use the results of due diligence to inform your integration planning. The information gathered during due diligence can help you to identify any potential challenges that may need to be addressed during the integration process. For example, if due diligence reveals that one of the organizations has a different accounting system, the integration team will need to develop a plan for migrating to a single system.

• Communicate regularly with staff and stakeholders. It is important to keep staff and stakeholders informed of the merger process and the integration plan. This will help to minimize uncertainty and build support for the merger. This is also a critical step for building relationships between leaders and allowing them to share their vision for the merged nonprofit organization.

The information gathered during due diligence is essential for developing a realistic and effective integration plan. Here are some specific examples of how due diligence informs integration planning:

• Financial due diligence can help to identify any potential financial risks or liabilities that could impact the merged organization. This information can then be used to develop a financial plan for the merged organization and to identify any areas where additional resources may be needed. For example, if due diligence reveals that one of the organizations has a large amount of debt, the integration team will need to develop a plan for reducing or eliminating that debt.

• Legal due diligence can help to identify any potential legal risks or liabilities that could impact the merged organization. This information can then be used to develop a legal structure for the merged organization and to ensure that the merger is in compliance with all applicable laws and regulations. For example, if due diligence reveals that one of the organizations has a lawsuit pending, the integration team will need to develop a plan for addressing that lawsuit.

• Operational due diligence can help to identify any potential operational challenges that could impact the merged organization. This information can then be used to develop a plan for integrating the two organizations' operations and to identify any areas where additional resources may be needed. For example, if due diligence reveals that the two organizations have different technology environments, the integration team will need to develop a plan for migrating to a single environment.

Overall, due diligence findings can help develop a comprehensive integration plan that addresses all of the key issues involved in combining two or more nonprofits. If you are considering a merger, it is important to invest the time and resources necessary to conduct thorough due diligence and integration planning. This is the best way to ensure that your nonprofit merger is a success.