Melissa Waters: All right, thank you again for joining us today. The topic for our expert speaker webinar is nonprofit mergers, the strategic tool during the pandemic.

My name is Melissa waters and I'm the manager of events and programs here at JMT consulting. We're happy to have John McIntosh with seachange Capital Partners joining us along with Jane Brody and Matt Hopkins of Vicus partners.

I want to go through a couple of housekeeping tips and talk a little bit about JMT before I hand it over.

So, this webinar is sponsored by JMT consulting, we are an ERP and financial management solutions firm with more than 30 years experience and we specialize in nonprofits only.

I'd also like to share a few housekeeping notes.

If you have any questions at all during the webinars today please submit them in the Q&A box at the bottom of your screen. And we will get to those at the end of the presentation.

We're also recording this webinar and we'll share a copy of the recording, along with the slides with you once the webinar has concluded.

Finally, I'd like to introduce our three speakers today. First we have john Macintosh with sea change capital. He spends much of his time exploring new ways that seachange might help nonprofits facing challenges.

And in conjunction with his role at seachange, he serves as an observer on a number of nonprofit boards and finance committees. Is a trustee of the john J Foundation and the Putney school and as an equity investment advisor to micro best Capital Management. He lives in Brooklyn, with his wife and four daughters.

We also have Matt Hopkins, who is a Managing Director at Vicus partners. He has closed over 50 leasing Transactions. Transactions ranging from 500 to 50,000 square feet.

And prides himself on representing tenants, ranging from small market manufacturers and innovative startups to large healthcare organizations.

He's also a co founder of the Vegas nonprofit team where he's committed to supporting the unique missions of New York City's community based organizations that are often unprecedented in real estate.

And finally, Jane Brody also his bike as partners is an experienced and passionate New York City commercial real estate brokers who probably represents tenants and the nonprofit education and medical industries.

Because Vikas partners only represents tenants and landlords Jane represents your best interest that hidden conflict of interest.

And remains unreal your unwavering advocate throughout the process. And with that, I'm going to turn it over to Matt first and then john will take away our presentation. Thank you.

Matt Hopkins: Thanks so much, Melissa, I'll be brief and just say, Jane. Jane and I as Melissa mentioned work for Vicus partners. We're a small exclusively tenant rep commercial brokerage based in New York City. But do things all over the five boroughs and

also work with a network of national tenant rep brokers, we started the Vikas nonprofit team to really focus in on the nonprofit sector that is often under represented in

New York City, but provides you know critical services and you know mission driven service to so many people, especially, you know, in a time like we're going through right now, which presents a lot of challenges and also opportunities. We're really excited to be partnering with JMT on what we hope is a series of great content and advice for nonprofits who are going through change and looking for ways to expand and make it through this, this time. So we would love to talk to any of you after the, you know, talk today about any real estate questions you might have.

But really excited to hear from john about the important topic of mergers and acquisitions, as that is, you know, so so relevant to what a number of you are going through right now. And with that, I'll hand it off.

John MacIntosh : Great. So it's over to me. Thank you so much, everybody for joining me today.

I hope we can we can do three things. I'm going to give you a brief introduction to see change because how do you know whether you should believe anything I say unless you know who I am and and and and what my experience has been like to talk a little bit about

The sort of tough actions that we think that many nonprofits need to be considering in these tough times and then focus on a subset of those and, in particular, the question of, of, of what I'll call mergers.

And other forms of sustained collaboration and I hope we have a lot of time for questions, everybody's busy. So if the end of the presentation, you don't have any questions, we can just leave early but I think the questions are really

Really a lot of the value I hope that you'll get. And also, and then I'll get me to say one thing.

See change gets a lot of calls from people, because people think we know a lot in an actual fact we don't we just know the people who do. And so when we get real estate questions. There's a handful of folks who we reach out to

Have which Matt and Jane are are our top of the list. So thank you to both of them and to JM T for inviting me.

Okay JMT. I think you heard about

Thank you for sponsoring this

Okay, so seachange. What is seachange. We are a not for profit. Our mission is to support or we like to say champion other not for profits that are facing complex

Financial and organizational challenges we we do that three ways we do that by making grants, so

We make grants that help nonprofits explore or complete mergers joint ventures other forms of collaboration. So we're not putting ourselves out as an advisor in that area. We are putting ourselves out as a source of money.

I'm in New York City. We also make loans relatively small loans quarter million to three quarters of million dollars and we're looking for places where

We do think we can get our money back, but that there's something about the situation which makes it tricky if not impossible for the conventional lenders, the banks.

The CDF eyes. We do a little bit of consulting, not much. There are a lot of consultants out there who are bigger and smarter than we are. But there are some areas where sometimes there's a need and no one else's is too interested to fill it.

In things like financial analysis in risk management and also in supporting groups that have decided to dissolve or to wind up

We don't do that work because we're morbid we do it because it's important, and no one else wants to do it. And then finally, like today, we try to share what we've learned from our on the ground experience in different in different formats.

Webinars phone calls reports.

And so that's what we're going to do today. And at the bottom of this slide, you'll just see we've been around for 1314 years, I guess, and are very

I guess blessed to have been able to work with a number of the leading foundations in the city, but also not for profit. So what I'm going to talk to you today is really

How we've tried to make sense of the literally hundreds of groups that we have spoken to, or connected with since the crisis started

And the best thinking that we have for how they should be responding and the vast majority of that thinking came from them.

Most of what you'll hear reflects what we thought best practice was from the groups that we connected with rather than our ideas of what of what they should be doing.

Whoops.

Why isn't this moving forward. There we go. Okay. Um, so everybody needs a framework, we think that that one way to think about how non for profits have been

And are and perhaps will continue to need to respond to the coven 19 crisis and the associated

Economic and Financial aftermath is with eight steps. I'm going to talk in in detail about a few of them, including mergers and a little bit less on the others. And these are roughly laid out in what I think of as the natural sort of chronological order.

Some of them are easy. Some of them are hard. The first one is to is to focus on your mission or refocus on the mission, you're

When you're when you're asking yourself, what should we do, how should we respond. You have to have a goal.

And the goal needs to be the mission of the organization. And I'm going to talk a little bit about that in more depth later.

Or early in the crisis. I thought the second step was to try to understand what type of organization you are and how you relate to to coven. This was

More important, perhaps in March, April, May, but I think still a question and we think it's helpful to sort of bucket yourself into one of three categories, what we call Hibernate responders and hybrids. So Hibernate or is just a group that quite frankly can't really operate.

In the crisis because it's an after school program and and the schools are closed or it's an art museum and the art museums closed and that really, they are that where it's a restaurant.

A restaurant based Workforce Development Program and the restaurant is closed. So really,

If you're a hibernated the goal being, you know, can we hunker down reduce our expenses and preserve cash to survive, quite frankly, until spring.

At the other end of the spectrum, or what we call responders who who not only can operate in the crisis, but where the demand for their services, perhaps even greater and more vital than normal. And that could be

For food distribution. It could be people sheltering our most vulnerable citizens running homeless for the developmentally disabled or homeless shelters and for them. The question is, you know, how do we

How do we raise the cash to keep doing the work. The idea of doing less work is just not possible, but in many cases, particularly the start of the crisis, the costs that these responders had were greater because of PPP and and sorry, p, p, and other other

costs associated with keeping staff staff safe, most likely, and then there's what I'll call the hybrids, who can operate their program in some way but need to modify modify it perhaps go virtual or whatever and the tough question. I think for the hybrids is

To ask, are we kidding ourselves should, should we really hunker down is this program and it's modified way really getting the job done and it's going to be case by case.

But that's a question.

Okay. Step three. Conserve cash, you know, cash is king and a crisis and we certainly suggested the groups look very hard at all the ways that they can conserve cash.

Which is, you know, quite simply reduce expenses delay payments and, you know, accelerate revenue or find new sources of revenue. And my sense is that people are pretty good about that.

I mean, most nonprofit leaders don't really enjoy reducing expenses, if it means laying people off and they don't enjoy delaying payments. If that means that your bank or your vendor is screaming at you because you simply have decided not to pay them.

But I think early on, you know, most groups understood that these are the sorts of things. They had to do and they were pretty good about getting more cash in the door, applying for the PPP loans.

Applying to the one-time emergency grant funds drawing down on their letters of credit if they had them.

Our senses that things are getting tricky again that for a lot of groups that cash is dwindling and further express expense cuts are going to be very difficult.

So we've had, I would say an increasing number of troubled phone calls in the last month or two, whereas over the summer, things were quiet.

Oh, we can talk about that. Step four. Reduce magical thinking resist magical thinking I think magical thinking is so hard and and magical thinking I used to mean is sort of a belief in miracles or or belief that wanting something to happen. Makes it more likely that it will

And given the passion and the emotion that so many executive directors and board members have

Trying to find a way to resist magical thinking is important. One way to do that is, is, is to make pre-commitments to say right now if this or this happens. Let's agree right now what we're going to do, which makes I think it harder to move the goalposts if those things come to pass.

Step five. And this is, again, I think where people like Matt and Jane, can be helpful is really understanding who can do what to whom

What I'll call the nexus of mission cash and control most nonprofit leaders, myself included, don't wake up in the morning with a, I don't know, sort of,

trumped like view of who's got the power who can do what to whom who could screw me who could I screw.

They don't think about reading the lease carefully to find out, you know, what's the landlord really going to do if we don't pay they don't think about whether

Their deposit accounts are at the same bank that their loan is with. And so if they miss an interest payment whether their cash will be frozen. They don't remember that.

unsecured creditors can't put nonprofits into bankruptcy in voluntarily.

They don't focus on the fact that if you don't pay your payroll expenses, your board members have joint and several personal liability that's just the kind of sort of zero sum bare knuckled thinking that

That most of us who are in the nonprofit sector don't really enjoy, but it is the kind of

Thinking, or at least understanding that I think people need when times are tough and and getting helped to understand that I think is important.

The next thing which we're going to spend more time talking about is to explore

Various forms of restructuring mergers, acquisitions divestments even dignified solutions. I think that this is a moment where

You know, as I'll spend more time on mission driven leadership may

May require opening up

Two things which change the organizational boundaries in some way or maybe even a result in not only a change organization. But perhaps the end of the organization as such.

And then the last two steps are to remember that help is available. I mean, obviously, particularly smaller nonprofits in tough times are not overflowing with cash.

But pro bono or low Bono help is sometimes available and sometimes paying for for the best advice you can find is an investment. And then the final thing is is

While we're in the midst of all this to still think about the future, because who wants to survive this crisis and then fail.

And I think it's it's thinking about the future and planning for the future.

Which also gives people the at least gives me the energy and the enthusiasm.

To get up in the morning during some pretty tough times. So that's our eight step framework, you'll get my contact details at the end of this, I'm happy to talk to anybody about any of this.

So please do give me a call. But now I want to dig into a couple of these things and, in particular, the question of m&a

Whoops. Why isn't this working. Here we go. Okay. Um, so before we get to m&a because I think they're related. Just a few more comments on the mission.

Um, you know, under the law, board members have a duty of obedience to the mission and and i think

People need to remember. But they sometimes forget that the foundation of all board and executive director decision making must be what best advances the long term mission of our organization.

The challenge and that and that concern for the mission really should take precedence over concern for other things like history vendors partners funders and even staff.

I think the challenge is that that many organizations.

Don't really know or have forgotten or have never tested in a high stakes way. I'm sorry. My screen goes ahead. I don't know why.

What their mission is some groups do many things. And so the question of is our mission to serve the neediest New Yorkers, or is it to serve people in Brooklyn.

Those sorts of questions. Haven't been asked. And so I think that that the most important thing you can do. The first step is to really have a tough discussion.

If you need to, at the board and executive director level about like what is our mission. And if we do multiple things which things are absolutely core to the mission in which are perhaps less per you know a little more peripheral

And also to recognize which we'll get to that a focus on the mission may mean that that the right thing to do is to hunker down because to survive.

To pursue the mission in the long run may require effectively shutting down in the short run, because otherwise, you're not going to make it that it may require decisions which are very hard.

For staff for funders or partners or vendors and that it may mission Griffin governance may require some sort of

Merger joint venture restructuring, or even a dignified dissolution

And that's hard.

Okay. The second thing I want to focus on a little bit before we get to mergers is magical thinking. So I think that the truth is that you see on the left side here.

You know, most nonprofits don't have much margin for error. They don't have the resources and therefore the time to make the right decisions to slowly that they have to act quickly, because most nonprofits are many 40% have less than two months of cash in the bank.

For example, and, and yet magical thinking can delay taking necessary action and what we've seen is if if if that delay.

That that delay can can can make the difference between a not for profit, having the time to make wise choices, having the time to control its own destiny and simply running out of time. And really, not having any capacity to think

Or or to control its own destiny. Nobody can make wise decisions when you're worried about the next payroll.

And so I think the way to the only way to protect against magical thinking is really to map out scenarios into pre commit to action.

That I think is, is, is the best way, and perhaps the only way. And the other thing, less true now than the beginning of the crisis is

To develop mechanisms so that decisions can be made as quickly as they need to

while still ensuring that the governance is appropriate and I think many groups decided, listen, we

We can't let the executive director just do whatever they want. That doesn't seem right. But on the other hand, sometimes we're going to have to make decisions around things like PPP

On very short notice. And so you know what some groups have done is is is created committees and maybe it's the executive committee that are willing and able to meet even daily, if need be, so that the executive director

And the people ultimately responsible for governor in the organization can get together fast enough, because the two alternatives wait for a full board meeting or fully delegate to the executive director most groups don't think are appropriate.

Okay, strategic alternatives. And that's sort of the, the thing I think we want to spend some time on today.

So we've been we've been involved in supporting groups and exploring sort of mergers and collaborations since since 2008 we've looked at more than 1000 situations. We've made about 250 grants. We've seen a lot of good stuff. And also some disasters.

We think of mergers and collaborations as on a continuum with other forms of restructuring, which could be divestitures or even dignified solutions.

That in every case, the board and the leadership have said in order to pursue our mission more efficiently and more effectively or more stable Lee, maybe we should think about moving the organizational boundaries in some way.

And that could include everything from sharing a back office to

To divesting a program to a full-blown merger.

And to be clear at seachange. We're not merger maniacs. We don't think the right answer is always merging. We don't think there are too many nonprofits.

We think that nonprofits operate in a dynamic environment where board members change founding executive directors and inspire pandemics emerge and that sometimes in light of all that

Being efficient, effective stable.

Maybe best serve through some sort of merger collaboration. But we always think it's hard. I've never seen a nonprofit merger or collaboration that was easy.

Most nonprofit leaders don't have much experience in this area and most board members who think they have experience have experienced. It's not always relevant because they probably have it from the corporate sector.

And so we've wanted to help groups that have their own volition have decided to explore this as a strategy, not to be hectoring them from the sidelines saying you should merge, you should merge, you should merge.

So, how to go about this. It's very hard. Every situation is different, but what we've learned over 12 years is is that process really matters that if you get the if you get the process. Right.

Then, usually you reach the right answer, that if you if you get the process right and the right answer is to merge with organization. A you'll probably reach that conclusion.

If the right answer is not to merge with organization. A you'll probably reach that conclusion. So the getting the process right really matters and and what we have seen over the years is that most successful processes have

These eight characteristics. I'm sorry, always seems to be eight today.

The first is to be proactive. It goes back to what I said about starting early that if you wait and only consider something like a merger.

Until things are really tough and you're under duress, by and large, the clock runs out when people call us and say I we had a board meeting yesterday. And we'd like to, we think would make sense to consider.

Exploring the merger with another group. I'll listen and if I hear they're nervous. I'll say, Hey, you know, you sound a little nervous. Are things okay like financially.

And if if they said oh yeah like they're, they're fine. Except we won't make payroll next month. I just say, I'm really sorry, but there's nothing we can do.

Wise mergers take six to 18 months to complete exploring complete, on average, there are some that are less than six months, but it's very tough.

And so if you wait until you're really in a desperate situation. Um, it's very, very hard to get things done. And so we we encourage people to be thinking about collaboration.

This was pre coven as an ongoing strategy, not to wake up every morning and say, Gee, I wonder if I should merge with someone, but on a, you know, on a periodic basis every six months, once a year to ask yourself the question, and talk about it with the board.

You know, do we think it might make sense to talk to others about how we might work together in a deep way and if so, why, and if not, like, why not and not have this be something that only happens when you're in trouble. In reality,

The single biggest motivating factor for for merger and collaboration discussions that we've seen over the years has been

A change in leadership or an impending change. It's the executive director, particularly if they're long tenured or the founder is saying, you know, I need to move on. I want to move on. That tends to release.

give people the freedom to ask the question, Should we kind of merge.

But, but our senses that that now in this crisis, more and more groups are asking the question, even if they're not facing leadership changes because they recognize that we're going to have many years of tough economic conditions and that even if things are fine for them right now.

They can't take stability for granted and i think that's that's

Allowing them to to more comfortably say Hey should we work with someone else. So, be proactive, number one. Number two, I also said this really go back to the mission before you talk about any particular merger or before you get into the details with a potential partner.

Making sure that there's mission alignment is super important. You know mission is one of those very vague squishy abstract nouns.

To me the way to have one helpful way to have the mission discussion is to say, you know, what do we do, what do you do. Why do you do what you do.

And why do we do it. What motivates us. How do you measure success. How do we measure success and what important assumptions do we make about the world. And I'll give you an example for what the last one means, you know, I think.

They're in education charter schools, find it very hard to merge with non charter schools, not because

They're not both committed to kids not because they're not doing educational programs, not perhaps because they measure success differently.

But because when you get to assumptions, by and large, the charters believe or some charters believe that the traditional school system.

Is unfixable and the collective bargaining was a huge problem. And many people were outside the Charter world. Don't make those assumptions and so

So just understanding what do you do, why do you do it. How do you measure success. What assumptions do you make and we see that that what you do can be quite different from a potential partner.

But if your motivations and your success measures in your assumptions are different, it's very tough and if you don't see that mission alignment, you should just move on. Try to find another partner do something else.

The third thing is once you do get talking words really matter. I'm generally speaking the merger word is a bad word, the N word is a bad word.

Let alone acquisition or takeover. So finding a word that that is better, not just in tone, but also in substance that makes makes people understand that. But most of these transactions are really not about

The strong absorbing the week but it's about groups that have mission alignment coming together in a way that gives each of them.

That makes sense, given their complementary strengths and their needs and it can be union nesting collaboration and even very simple things like trying quite quickly to say us rather than me and you.

I think it's important lawyers HATE THIS. I THINK JANE might be a lawyer. I can't remember, we strongly suggest delaying the lawyers as long as you can.

At least until you have some sort of enthusiasm, some sort of handshake agreement to explore something

You know, I think the legal aspect is important, but most of these conversations. At least at the start, are really about exploring your common interests, not about defending your separate ones and and you know lawyers are often

Quite frankly tasked to help you identify and defend your separate interests and if you're not careful. If you don't, you haven't

You know created what I'll call a head of steam around your common interests, then taking that frame.

Really will take a lot of the energy and air out of the room and can and can derail conversations that might have been quite fruitful and I'm not suggesting that you that you don't bring

Lawyers in and you don't look at the legal side but but i think it should come later in the process. Don't forget the money so

You know, as I said, I think good collaboration is can be driven by stability effectiveness and efficiency.

And maybe efficiency in some cases can mean cost savings but in our experience, there are very, very few good collaboration is where cost reductions were really the driving force.

Sometimes, as you all know, given the strange perverse way that nonprofits are funded and given how hard it can be to fund certain costs, particularly overhead relatively small cost reductions can matter.

So I'm not suggesting that you would nor cost reductions, but if you have a board member, particularly with corporate experience. Who thinks it you know you're going to merge with someone else and your costs are all going to be a lot lower, if you can just tell them that just saying so.

I would also say that if there is a place to reduce costs. It's probably if there is a reduction in staff in the overhead function in particular, perhaps the finance function. And those are exactly the people who you need to help you navigate and explore a transaction.

So figuring out early on, like, Listen, if we come together. There's, there's only going to be one finance director and chief financial officer and figuring out how you

humanely and fairly handle the person who might lose their job is not only good as a human matter, but it's also really important because you probably need that person to help you out. The other thing we tell funders, is that

That although it does cost money to explore mergers and collaborations and we help with that with grants, it's usually got a very high payback.

That even when the cost reductions are small, as they often are, they're usually they usually more than pay back whatever upfront costs you need if you wait a couple of years.

So yeah, I think, don't get don't get money focus stay mission focused and remember that.

Effectiveness and stability are usually more important than then cost savings but also you know think hard about what the cost savings might be

And the last two things is, it's really important to get outside help in the merger and collaboration space and we feel we've learned over the years.

That it is very often. Not always, but very often extremely helpful to you and your partner if you've reached the point of saying, hey, there might really be something to explore here.

To to hire a jointly retained facilitator. If you don't like that word replace it with consultant or advisor someone whose job is to help you both march along, you know, you know,

Organize timely way to reach the conclusion, either to come together or two part friends. That's super helpful. We don't do that work. But there are people around town who who do

And and it tends to bring discipline to otherwise and discipline processes and of course lawyers at the right time and again

You may have particular issues around real estate or systems or HR where you need specific outside help, but in most cases the jointly retained facilitator is is is super helpful. And then the final thing I'd say is, um, you know, if you

If you're in early discussions with another group and you just can't imagine you just can't imagine that even if the merger. The collaboration was consummated that you could celebrate. You just, you just are so filled with kind of sadness.

That you that you can't imagine being able to say, this is great, given where we were. This is terrific. It makes us more efficient or it helps take the mission forward or whatever it is, if you just can't imagine celebrating

I'm either stop and and try to find a different way forward a different partner or recognize that it's not about the situation. It's about you that you're just so emotionally invested that you can't sort of

Think straight but you recognize that and and sort of recuse yourself or somehow, somehow, don't let that sadness pollute the process because it can be contagious.

And and these explorations. And these transactions are hard and you need people kind of fired up.

Who are who are driving towards a conclusion that they can celebrate and if the conclusion that you see is just one that's going to make you sad.

You've got to work on that because that really will if you're an executive director or an important board member and you've got that kind of sad or and countenance. It really will

It really will do a lot of damage. Okay, that was it. I tried to blow through it pretty quickly, as I said, I'm happy. My colleagues and I exist to help folks like you try to help folks like you. So there's my name my email.

And my phone number. And I think now, I'm hoping

We can have a discussion and questions.

Melissa Waters: THANK YOU, JOHN. Yeah, we have a few questions that have come in and also just for everyone's knowledge we will be sharing john and Jane and Matt information in our follow up email if you don't capture it right now.

First question is what are some of the nuances with divesting a non core program. What's the involvement of funders and staff.

John MacIntosh : Yeah, um, it's a great question and I don't think there's any, you know, easy answer, um, you know, I think if if

The easiest ones I think are where

where not only has the board and the leadership decided that a particular program is non core, but the people who work in it are sort of a separate group who also feel themselves to be kind of different from the rest of the organization.

So in a way, they're, they're not resisting being called nobody wants to be called non core, but they're not resisting being seen as non core and they're sort of separable. And then I think if you can, you know, if you can find

A group for whom it is core, you know, everybody wins. And if and what we've seen is if you have funders restricted funders who have supported that group.

You know, as long as you're not trying to sort of convince them, hey, we're getting rid of that division that program, but please

Please repurpose your money for us. If you can say, listen. You've supported this program with us, but we think there's a way to take forward better you know my experiences they've they've

That's, you know, that's often been successful. I think in most cases, I would just say not to play lawyer.

That

If the program is legally just a program of the larger not for profit. If it's not its own, you know, separate legal entity, you know, clearly there's a question of

How you transfer the staff to another organization if they're going to take it on and how you transfer any grants that are, you know, partially spent

Those are pretty trivial problems as long as you're accountings. All right. I think the harder part is when the non core program thinks of itself as core or where the people who work on it also work on core programs and then things get a bit trickier. In our experience,

I would say one other thing, sorry I'm rambling. Um, we're seeing a lot sort of groups saying

We were sort of through historical accident or to do our friends a solid we've kind of been the fiscal sponsor or or parent or

We've been the home for this program for the last sort of decade and it's been great. But you gotta go.

You know, we're just from a risk management and complexity standpoint, we've got so much going on. So it's been great, but get out of here by December.

And we've helped a couple of groups who who didn't love getting that message, though they understood quickly put in place, not so much. Now, in one case in two cases there. It's not so much that they're finding another partner, they're just getting organized to be a standalone 501 C three

Which again is not, it's not hard in a in a

In a theoretical way. It's just difficult to get all the pieces in place in time to be out by the on the timetable that the parent has said, and so I think that's a phenomenal will see more of again because of coding

Melissa Waters: All right, we have lots of questions coming in now.

I'm going to read one that's a little lengthy so bear with me. I might

John MacIntosh : As a lengthy too. So it's a good match.

Melissa Waters: Well, I might cut it down just a little bit and that we can also follow up after as well.

So it says, Why would a potentially financially viable nonprofit consider a merger and that would likely involve handing over its programs to another organization.

So, simply put, a nonprofit merger should be avoided, unless it's absolutely clear that the successor organization would do a better job of meeting the organization's mission.

John MacIntosh : No, I think, I think, look, I think that's right. I think that um that

You know, we have seen a number of what I'll call you know God who made us mighty make us mighty are still mergers were two groups that were both fine.

Came together because they thought. Together they would both be able to better pursue their mission.

That is, you know, that is not as common as I'd like. In most cases, at least one of the groups feels that the status quo in the long run.

Is not sustainable, because the executive director is super charismatic and when he or she leaves won't be replaced or because

They need Robin Hood funding and they think they're going to get road made is something that usually there's something going on that makes one of the groups at least think

Not this month, maybe not even this year, maybe four or five years out, but there's something about the current situation, which is not sustainable. But again, we have seen, we have seen groups where they are so mission-focused

That they say you know everything's fine. But, and we're financially viable, but we can be more effective or more efficient or more stable by coming together and that that mission motivation is enough to get them doing the hard work.

But I think if you don't believe that you'll be more better able to pursue your mission, you shouldn't merge.

I completely agree with that. It's, it's not a good in and of itself.

Melissa Waters: Alright, next question. What are the main differences between merger and acquisition

John MacIntosh : Yeah, so I that's that's a one way to answer that question is to say it's an uninteresting legal question. I mean, the truth is, most, most if you think of a merger as two groups coming together completely. Most of those are actually not

consummated as mergers under nonprofit law. Most cases, one of those groups becomes the sole member of the other. So even in a in what I'll call it

A real merger, the legal form is often the closest thing you can get to an acquisition under nonprofit law. I'm or sometimes you have you have mergers that are basically temporarily done through that structure and then later sometimes years later.

The merger is formally consummated in one organization goes away as a legal entity or both organizations go away and another one comes up so

So I, I would sort of say that I wouldn't focus on words like merger and acquisition, I would basically say, what are we trying to achieve in the world are we trying to share a back office, are we trying to share executive director, are we coming together completely

And if you're coming together completely call that a merger, um,

Because the legal form usually is is pretty uninteresting.

Melissa Waters: Okay, next question. Do you see government funders forcing mergers due to state and federal budget shortcomings overhead that could be shared across nonprofit service agencies that have similar missions, for example, right.

John MacIntosh : So, um, I guess it depends what you mean by forcing i think that

You know, the, the government doesn't have and doesn't want

The really the ability to force nonprofits to do anything except in cases where there's you know suspicion of fraud or criminal activity and the Attorney General can come in and wipe out the board and, you know, so, so I think

I think that that there is no government agency that that sort of thinks of themselves has forcing this, I would say in some areas, and I would say, particularly op ed and the the disability area.

In some areas, there's a feeling that, that there are too many nonprofit partners to government and there's probably a hope.

And an expectation that as government funding gets tougher.

Groups will come together. So I wouldn't, I wouldn't say forcing I might say hope and expectation. But of course, in other areas.

The government thinks there aren't nearly enough nonprofits and they want to work with smaller grassroots organizations. And so I wouldn't sort of fall into government thinks there's too many wants us to merge. I think it's

You have to look at the agency, you have to look at the issue area, you have to separate, sort of, you know, the city from the state.

Yeah overhead that can be shared across nonprofits. Yes. I think we're. That's why I hate when you know when mergers dominate the conversation. I think there are there are lots of groups who could probably reduce their

Their back office costs by sharing back office with one another, or perhaps by outsourcing to I don't know groups like BT Q or whatever, without, you know, without

Without going through a full on merger because they're there. They don't need to merge what they need to do is to try to get some benefits of scale.

Particularly in their back office and there may be a way to do that by working together, which doesn't entail a full on merger, but at the same time might be a courtship period.

Or a little pilot period, which if it goes well might naturally lead to other conversations, if they have similar missions, but might stand on their own as just smart as just smart arrangements.

Melissa Waters: All right next question, what steps does a struggling nonprofit silicate four To five

John MacIntosh : Yeah. Well, one is

Start early enough so that it's possible you know you can't fail to make payroll.

Or pay your payroll taxes or, you know, there's just, you know, if, if you start too late. It's just not possible to have a dignified dissolution

If you start early enough. It's still tricky. You know, we've we've been involved in winding down in for different reasons. I don't know, eight or nine, not for profits.

I think it's it's it's almost impossible to do it without outside support in part because

You know some of your team, quite rightly, much of your team are going to go find other jobs or look for other jobs. And so just just the kind of meat and potatoes of what are all the things we need to do.

Even if we have the time. What are all the things we need to do to have a dignified dissolution knowing what that list is and having done it before, and having. I don't know.

The somewhat detached cool head required to march through that list is is pretty hard for insiders.

You much better off. I think bring trying to bring someone in from the outside, we have on our website. We have a resources section.

And there's a bunch of resources, none of which, I think, with one exception is written by us but it's it's stuff we

collected from third parties to go to exactly this question, I think, one of them is called the wind down checklist. So if you go to see change cap.org and look under resources and look under dissolution and wind down, you know, hopefully there'll be some stuff that that helps you there.

Melissa Waters: Hey, we've got lots of questions. We're going to try and get through as many as we can. So I'm going to keep reading them for you. JOHN

And next is, have you seen mergers or maybe significant collaboration between profit and not for profit.

John MacIntosh : Right, I'm mostly above my pay grade. It's one of those things that I think is really cool. In theory, but we haven't seen much in practice, I would say.

And I'm, you know, I think the the essence of the question is deep collaboration not somebody basically just being a customer of the other one. I'm mostly I think in healthcare.

Between nonprofits and insurance companies in particular.

Between nonprofits that basically need access to capital and balance sheets and and for profits that have it or, quite frankly, I mean, I'm not sure. Big hospitals, might as well be for profits for many intents and purposes.

And so, you know, so nonprofit partnerships with hospitals probably are quite similar to this outside of healthcare. We haven't seen a lot. Again, I think it's I think it's a

It's a great idea. Maybe, but we haven't we haven't seen a lot of it. We have seen some nonprofits convert to for profit status generally

Looking back, not very satisfactorily think there's nonprofits who think geez raising grant money so hard it would be easier to attract investors and then they convert and they discover

That the reason tarde is because what they're doing is really hard. It's not because of their tax status.

You know, maybe we'll see more of this. I think it's an interesting area. But again, outside of healthcare. We haven't seen a lot and even within healthcare. It's been pretty rare.

Melissa Waters: Right. Can you discuss some of the other types of restarts restructuring and group arrangements, short of m&a. What is the collaboration look like

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John MacIntosh : Yeah yeah lot piano consulting has has a continuum, which I think is pretty helpful. I mean, we didn't come up with our own continuum, because I don't know they're seeing good enough or great really so I you know i think i think it can be

It can be a programmatic collaboration. You know you, for example.

The Henry street settlement has a deep collaboration with the baton sis federally qualified health clinic.

And so you know what looks like seamless service to the clients is actually a very deep long term programmatic joint venture between two separate entities. So I think there's there's deep programmatic collaboration.

There's again back office sharing, we have seen, which I think is weird, but it works. We've seen groups that share an executive director, but are not you know merged or in any other way. Working deeply together, which is, you know, interesting, but there you go.

We have seen

You know groups coming together to form a network where, you know, four or five groups have an interest in a range of services and I don't know a geographic area Sunset Park or whatever, and they create a new nonprofit.

Of which they are the members to do this joint work maybe to do the you know the case management or the referrals. So I think, I think there's lots of different ways.

That groups can come together in these collaborations and that the the best chance of finding them is to not

To not focus on the structure, but to focus on the need, you know, what is it that we're trying to do, what are, what, what do you have, what do we have

And and and the natural collaboration to satisfy those needs and take advantage of those strengths will emerge.

I think if particularly corporate board members want a sort of hijack the conversation, say, Well, is it a merger or watch. And I think it's better to focus on the substance of what you're trying to do. But the law piano continuum is helpful, at least in naming some of these things.

Melissa Waters: Okay, just a few more questions. How do you help board members with a finance background understand what the different nature of nonprofits financial structure.

John MacIntosh : You know i i was a finance guy for a long, long time. So, you know, I've walked in those shoes, brother.

We've got some stuff that I think is hopeful is helpful short stuff to try to help people understand

You know, both things which should be trivial like restricted grants versus unrestricted grants.

You know how unrestricted net assets are like sort of book value. I mean, there's part of it is sort of just terms they have these terms and these terms don't quite match too many sort of not for profits.

You know, understanding the nature of payment is a whole range of things around accounting around business model, and certainly around how to pursue collaborative transactions that

That even really passionate board members who don't have any nonprofit experience won't understand. I think it's an ongoing challenge.

Because most finance people if they don't understand what you're saying, think that it's you, not them, which is tricky.

But again, we've got some stuff. And we're also happy to talk to folks if that's helpful to try to be that bridge.

Because you want your, you know, you want your board members on board and have a finance background is helpful in some ways, but very unhelpful and others.

Yeah, so I can send you some stuff. But we're always looking for for things that will help because this is a big problem in this town.

Yeah, and it's it's a it's a constant battle.

Melissa Waters: Okay, we are considering a consolidation with an organization that has a different mission and programs more for the purpose of diversifying our strengths and opportunities than to put similar organizations with similar expertise and strings together.

Is this a sound reasoning for a merger.

John MacIntosh : Consolidation I think it can't. I think it can be, as I said, You know what, what, what a group does

Two groups. I think can can come together even completely they do different things.

As long as you can make sense of the van newly expanded mission mean take a, take a large group like the Children's Aid Society. For example, you know, they do lots of things that

Also have smaller nonprofits focused in so they, you know, they do. They do, they do a range of things.

A number of which could support independent, not for profits. So I think the question just from what you've said is, if you came together.

Could you make sense of the newly expanded mission would it hang together or would you put your board and your executive director in this weird position where they were running this sort of trying to govern this unnatural.

Organization and I'm just making this up. But I don't know you probably couldn't merge the Nature Conservancy with the Children's Aid Society, because you'd kind of say

Well, like we're more diverse. But how the hell do we run this thing because

We got this mission. It's all around the environment and preserving the natural world. And then we've got this mission that's all around vulnerable populations in New York and and so I think

My question is, does it does the does the combined mission seem coherent.

Because if it does, I think this is the kind of merger that can make a lot of sense. If it doesn't, you're probably solving a short term problem around diversifying strengths and opportunities but creating a much bigger, longer term problem which is you've got an ungovernable mess.

Melissa Waters: All right, is there a benefit to maintaining

John MacIntosh : Can be, I mean, particularly if you do the soul member

The benefits can be a couple fold and, you know, one is depending on what sort of government money or grants you have, you don't need to transfer the grants over, you can just kind of burn them off, um, you know, it may be that it's easier to apply for ongoing support as two separate legally

Arguably legally separate organizations, having a second board may be a way to keep some board members if there just weren't going to be enough slots on one

You know, but it also comes at a cost. Both the cost of the you know the the the two audits and etc etc.

And so I think, again, you'll see some groups, keeping them around for a while until those grants burn off.

But then dissolve in one of them that is probably the most common and I would say on average dissolving them. I know, two, three years later after the the the transaction happens, but we have groups that have, you know, where they've kept the separate legal entities indefinitely.

But I think it's usually around the grants leases things where you would need someone's approval to transfer them and it's better to just run them off and then renew into you know what I'll call the surviving entity.

Yeah.

Melissa Waters: Right. How does one identify other organizations that might be a good and then a partner ones that might not be known to the nonprofit.

John MacIntosh : Yeah mode. So when when people call us and say, Will you help us find a partner, my stock answer is no.

And they say why. And I say, because you probably don't need help, you know, most of these discussions and successful

collaborations are between people who already know each other. It's like, I don't know, marrying your cousin or something. So my advice is go to a quiet room.

And say to yourself, if there were a partner for me. What are the 34567 organizations that could be and and the high high likelihood is

That your partner is on that list, which doesn't mean it's easy to just pick up the phone and say, hey, you want to explore merger but but but identifying your potential partners generally not a problem.

If you know, for whatever reason you can't do that, you're new to the sector or you've been living under a rock or whatever it is, then I would think about

Who is out there in the world who probably knows you and your potential partner who's the big funder in the area.

Who's the big I don't know consultant, who's just

The person around town. Are you are you part of some umbrella group, you know, are you in the Human Services counselor you in the United Neighborhood House and sir, you are in the alliance of coalition. The coalition of behavioral health agencies, you know if there's someone

You can go to

Who, who might have some ideas. If you approach them carefully that tends to be more effective than calling someone like me because, you know,

Early Learning in Queens is not is not theater in lower Manhattan and so and guide star and others don't tell you what you need to know. So again, three, three part answer you probably already know who your partner might be. And if you don't, you probably know who might have some ideas.

99% of the transactions. We've seen are in those two categories.

Melissa Waters: Final question. What was the name of the collaboration continuum that you referenced.

John MacIntosh : It's been answered already. It's in the chat. So I don't even need to answer it. Yeah, it's the La La piano

You know, the people out there doing facilitation work in and around collaboration are most of them and it's changing now in our new zoom world.

Our sole practitioners or their small firms focused in particular geographies lot piano is the only firm of sort of some scale that also does this work on a national basis and he is. He is kind of the grandfather. We've done a lot of work with them.

You know, we suggest when people are going to talk you know interview consultants that they talked to two or three

And if they, you know, if they only know one or two that they put law piano on the list. Just, just for a basis of comparison there is sort of, you know, they've been doing this a long time. They have a particular approach.

And and you know it's it's worth talking to them because David and his group have have, you know, thought a lot about this work, and that's the continuum, the collaborative map.

That I referenced.

Melissa Waters: Wonderful. Those were some great questions. Thank you for everyone for your participation. And with that, JOHN We are at the end of our list. So I'm going to wrap it up if that's okay with you.

John MacIntosh : Great. And yet, please, before you cut me off, you know, we're, we, we welcome.

calls from EDS from board members from biggest to the smallest groups from groups that are doing great from groups that are on death door.

Try to treat everybody respectfully and and always confidentially. So, you know, I hope.

If there's interest. Just give me a call. I have not only willing to talk to welcome it.

Melissa Waters: Wonderful OF JOHN We thank you so much for your time today and Matt and Jane. Also, we appreciate you setting this up with us.

And we will share everyone's information in our follow up email again will also share a copy of the recording and the slides. If you're interested in more of these webinars that please go to JMT consulting com and click on our Events tab. And with that, we hope that everyone has a wonderful day. Thank you.

John MacIntosh : Thank you so much.

Matt Hopkins: Thanks so much, everybody.

Stay safe.