Nonprofits find reasons to merge in economic slump

Economy a factor in nonprofits merging Three Southside groups with similar missions unite to share resources

HOPEWELL -- The recent merger of three small Southside nonprofit organizations signals a potential consolidation of nonprofits partly attributed to the economic downturn.

The Southside Virginia Nonprofit Resource Center, Focus INC and ConnectSouthside.org joined to keep and strengthen their programs in lean economic times, an official with the merged group said.

The groups served other Southside region nonprofits: Nonprofit Resource Center provided books and other materials on starting and managing nonprofits; Focus INC provided training workshops; and ConnectSouthside.org, a free online network, provided online access to resources and facilitated communication and advocacy.

The programs now will operate under the governance of the Hopewell-based Appomattox Regional Library System and its board of directors.

The merger -- which took effect in December but was executed in February -- allows the groups to consolidate resources, seek larger grants and share office space at the library while continuing their common mission, said Wendy Austin, formerly director of ConnectSouthside.org and now director of the still-nameless group.

Austin said the organizations had considered a possible merger for some time but initiated the process in August.

"The economy hit and so we really said, 'Let's move on with this,'" she said. "I know that doing it for financial reasons can't be the main drive, but it certainly was a big one."

It is for many organizations nationwide, according to a recent poll by Bridgespan Group, a Boston-based nonprofit adviser to other nonprofit and philanthropic leaders. The poll released last month showed that 20 percent of 117 nonprofit respondents said mergers could be a solution in their response to the economic downturn.

"If economic conditions continue to deteriorate, more and more nonprofit leaders will likely consider the [merger and acquisition] option," said William Foster, a co-author of the study. "But our study shows that there has never been a lack of nonprofits considering M&A when under financial distress."

A more in-depth Bridgespan Group study of 3,300 nonprofit deals in four states revealed that mergers in nonprofits have historically occurred at the same rate as business mergers.

The word merger seems to be in everyone's mind, particularly these days as small nonprofits are struggling with leaner staffs and fewer resources, said Nancy Stutts, director of Connect Network in Richmond, a nonprofit that works with other nonprofits.

Stutts projects that with the financial slump, there will be more local mergers in the coming months.

"Most of these groups are in the process of merging," she said. "There aren't very many that have merged."

A few that are in the works include a possible deal between CHIP of Virginia and Healthy Families, both of which offer child and family support programs. Another deal is likely between Caritas and The Healing Place, which both provide shelter to homeless.

Others, such as the Virginia Learning Disabilities Council, have opted to seek a group or individual to "adopt" them.

In July, the Central Virginia Foodbank joined forces with Meals on Wheels Serving Central Virginia to maximize their resources and expand their feeding capacity.

"The research says that [money] should never be the primary reason to merge," Stutts said. "But if there is mission overlap, there is more to gain from working together than going it alone."

For these organizations, there is a shared mission, and in the long run, a merger may result in financial savings, she said. In some cases, she said, it saves them from closing.

Nonprofit Resource Center, Focus INC and ConnectSouthside.org struggled to operate with one or two-person staffs each. As a unified program, they have two full-time employees and two part-time employees, plus volunteers, Austin said.

But a merger is a long, complicated and particularly emotional process for nonprofits. Eventually, one of the groups loses its leadership, and the two organizations -- their boards, staffs and cultures -- have to learn to work as one, Stutts said.

"People in the nonprofit sector are very passionate about their work," she said. "Giving up a mission or way of doing things that you think are the most effective is a lot."

Contact Luz Lazo at (804) 649-6058 or llazo@timesdispatch.com.