It’s not just about the numbers: The pivotal role of culture during mergers and acquisitions

This is the fifth article in our NFP collaboration series.

When an organization is contemplating a merger with another, it’s crucial to understand the financial, operational, legal and human capital implications of the transaction. However, it’s also essential to understand the critical role that culture plays in the success or failure of the integration process. During the 2024 Baker Tilly not-for-profit governance and fiscal workshop, we were fortunate to have three insightful and experienced speakers as part of the panel discussion, Mergers, acquisitions, joint ventures, oh my! Not-for-profit leaders share lessons learned, which kicked off the event. Each panelist provided valuable takeaways regarding the integration process and stressed the importance of cultural considerations drawing upon their individual experience and knowledge.

NFP leaders' lessons learned

As part of the dynamic panel discussion, Jean Phelps, Chief Executive Officer, Incompass Human Services, talked about the importance of identifying potential cultural pain points early in the due diligence process and addressing them head on; like any other issue would be tackled. She discussed the important roles of the board, organizational brand, services and name as well as organizational leadership, including talent alignment and succession planning.

We also engaged the board's perspective on NFP combinations through MiSide Board Chair, Cheryl Hawkins, PhD. She discussed the need to identify common values between the organizations and the importance of balancing communication and transparency with efficiency. She also urged listeners to remember that even in the midst of the transaction, operations must keep rolling.

Our third panelist, Philip Yun, President and Chief Executive Officer, World Affairs, was involved in a recent merger in 2023. He explained that from his perspective, not-for-profit mergers are generally more complicated because of how important an organization’s mission, vision and core values are to the people that work there.

Key internal considerations

Mergers and acquisitions (M&A) can create uncertainty and anxiety among employees. People begin to wonder what their role will be within the new organization and if in fact, they’ll have a role. A strong organizational culture can foster trust, reduce fear, encourage commitment – and even solicit excitement about the combined organization’s future. When the two cultures align, employees are more likely to stay with the “new” organization, reducing turnover and retaining valuable expertise.

Of course, the cultures of the merging organizations may not always complement one another.  Misalignment can lead to conflicting priorities and hinder decision-making. Differences in processes, procedures and communications can lead to friction and disagreements among leadership and employees. Taking the time to identify shared values and beliefs can lay a foundation that facilitates strategic goals alignment and begins the necessary collaboration to ultimately streamline operations, gain efficiencies and advance the collective mission.

External factors of NFP M&A

Cultural differences not only impact internal operations. They can also affect how the organization is perceived by external stakeholders and community constituents, including clients and customers, sponsors, residents and other community members. Organizations need to uphold their brand and reputation while also ensuring the community has a positive perception of the new organization, based on agreed-upon core values and a strong cultural identity.

Customers and clients typically prefer doing business with an organization they trust, while employees want to be proud of the place and people they work for.  Safeguarding and actively managing cultural considerations during a combination is essential to achieve synergy, retain talent and ensure long-term sustainability and success.

Actions NFPs can take to support cultural alignment

1. Take the time to recognize and understand the individual cultures of each organization. Gather feedback from employees, not just leadership, about what is important to them culturally. Utilize management meetings, focus groups and employee surveys to ensure employees across the organizations have an opportunity to voice their opinions and share feedback.
2. Examine each organization’s mission and values and determine if they are reflected in the employee feedback collected. Where are the greatest synergies and where are the most significant gaps?
3. Identify common feedback themes and collaborate to define a mission that reflects the values of both organizations, considers employee priorities and advances the success of the new combination.
4. Develop a compelling narrative that outlines the significance of the merger, its impact on employees and the new mission and values. It’s important that leadership begins exhibiting the desired behaviors and communicating this narrative frequently through various channels.

Baker Tilly can help

Navigating a merger in the not-for-profit environment is challenging, especially when you are focused on advancing your mission and moving operations forward. We have a dedicated not-for-profit team committed to collaborating with thousands of mission-based organizations, including helping NFPs with innovative collaboration strategies and M&A processes.

For more information, or to learn more about how Baker Tilly can assist your organization, contact our team.