When Innovation Means Joining Forces for Success
As associations across the globe consider how to effectively advance their missions in a post-COVID environment, a growing number are considering an approach most commonly associated with the for-profit sector: mergers and acquisitions (M&A). At McKinley Advisors, we have seen a noticeable uptick in M&A activity over the past few years. And while not every deal is meant to happen, M&A can often be a catalytic approach for unlocking new levels of innovation and growth for associations, their members, and the professions and industries they serve.
What Are Association Mergers & Acquisitions?
While mergers and acquisitions are often discussed together (and co-located in the “M&A” moniker) it’s worth noting the fundamental differences between association mergers and acquisitions.
In a merger, two or more associations come together to form an entirely new entity (often called “NewOrg” during the evaluation process). The fuel for successful mergers is an early realization and shared vision among leaders that there are opportunities a combined entity can pursue that each individual group cannot alone. Typically, in a true merger, both organizations are willing to evolve their identities, choosing an entirely new name and corporate identity for “NewOrg.”
An acquisition represents the purchase of an entity or some of its assets, such as meetings, programs or educational content. Associations on the “buy-side” of an acquisition typically approach several other organizations to inquire about their interest in joining forces or divesting of certain assets. Conversely, associations on the “sell-side” are seeking a new home for one or more of its assets, based on a realization that components of its portfolio are no longer aligned to its current strategic direction or are creating untenable opportunity cost.
The Case for Consolidation
Since associations are not measured by stock prices or shareholder returns, mechanisms that are more common in for-profit M&A, an early set of questions should focus on how success of the merger or acquisition will be evaluated. In thinking through the outcomes of M&A, associations should consider their potential returns against a handful of strategic questions:
McKinley Advisors recently worked with NACE International and SSPC: The Society for Protective Coatings to help them complete a merger to create an entirely new organization—the Association for Materials Protection and Performance (AMPP). Bob Chalker, CEO of AMPP, notes that “as we considered whether a merger was worthwhile, the leadership of both organizations immediately recognized the growth opportunities that would result from joining forces to serve our members together.”
Can we unlock meaningful synergies? Most M&A activity will include an eye toward unlocking operational efficiencies in the form of reduced expenses, duplication of overlap, and combining staff and volunteer talent to create economies of scale. This is a particularly useful approach to preserving and expanding the volunteer pool, which is especially important in today’s environment in which volunteer capacity is especially tight. “Where there was overlap, there was opportunity,” said Chalker. He added that, “SSPC and NACE were very good at what they did separately, and even though some of the programs were similar, each association had things it did better than the other. Now that we’re merged, we are combining the best of both organizations into our programs and services.”
Additionally, the elimination of multiple, competing memberships or participation options results in greater affordability — and more meaningful engagement — for members and stakeholders. “Our members often had to choose between membership to one organization or the other, one conference or the other, between sources for industry standards and information. Or worse yet, pay twice. Uniting it all in one association is already benefiting members and saving them time and money. In return, we’re gaining strength in numbers which helps us do more to serve the best interests of the industry we represent,” said Chalker.
Can we create a unified voice? Market confusion and duplication can quickly erode marketplace advantage for associations as they experience a range of new competition. Similarly, a unified, authoritative non-profit voice often resonates more clearly with funders, legislators, regulators and industry leaders than a set of fractured or commercially driven efforts.
What Will We Learn From Each Other?
In today’s rapidly changing environment, combining the experience, capabilities and market intelligence from two or more sources can lead to stronger market and customer knowledge. Aggregating marketplace intelligence about the needs, preferences and desires of members and key stakeholders can help associations that join forces more quickly achieve higher levels of market penetration and accelerate innovation in their professions and industries.
Getting to Yes
When the enthusiasm for a shared vision translates into a true spirit of partnership, the signs of a successful merger start to emerge. In AMPP’s case, this meant each group had to balance preserving aspects of its culture, programming and history with the flexibility to explore new approaches that were not familiar to either legacy organization. A guiding principle referred to as “merger of equals” helped keep these discussions on track. Chalker explains that “as we went through the merger process, we were very conscientious and clear that this was a merger of equals, and we were creating one new organization built on the long-term success of the legacy organizations. A merger of equals does not mean that all things are done equal or 50-50. It does mean that the leadership of both organizations have equal input and influence in the process.”
Whether an organization pursues a merger or acquisition, the critical first step is always the same—creating an environment in which the leadership of the organizations has the appropriate information, guiding principles, and a spirit of trust and candor to make data-driven decisions for the good of their mission and members. This environment is essential to maintaining the energy and clarity required to surface and resolve key issues as they emerge through what is often an intense, and somewhat lengthy, process.
At the outset, conversations should focus on gathering information and data to help leaders understand the business case and rationale for pursuing the M&A approach versus other organic growth alternatives. Of course, there are also a host of cultural, political and operational considerations that must be evaluated for any merger or acquisition to be successful—but this deeper level of due diligence should only happen if there is fundamental agreement among the parties that there is strong rationale for the conversations to be happening in the first place.
If the competitive, market and organizational drivers are favorable in your organization, considering a merger or acquisition could be a high impact strategy to quickly accelerate your positive impact on your members and mission.