Mergers & Acquisitions – Why we never hear of them in Non profit sector ?
Mergers and Acquisitions (or M&A as they are popularly known as ) are very common in business world. Very often we read about a new startup being acquired by a big company or merger between two established companies. India being the centre stage of enterprise startups, such news have become very common. Large international banks and Consulting organisations run separate divisions which specialize in Mergers and Acquisitions .
Is M&A a positive sign for a sector / country or is it a reflection of evolving economy. Is it a buzzword or a bad word ? To understand the same, let’s look at what drives a Merger or Acquisition in business sector.
The basic underlying philosophy that works in M&A, is the unique equation of one plus one makes three ie two companies together are more valuable than two separate companies. While Merger and Acquisition are technically different, what it encompasses is to identify and create synergy that makes the value of the combined companies greater than the sum of the two parts. So,the success of a merger or an acquisition depends on whether this synergy is achieved.
If it is really so simple and sounds good, have you ever wondered – why we don’t hear about M&A in the non profit sector, especially in India? What does that imply ? Does it really mean that no potential of Synergies exist in the non profit sector in the country or does it mean that there are no organisations working in the similar space. Let’s look at the sector with this new lens.
It is estimated that there are around 1.2 million NGOs registered in India, approximately 35% of which are inactive. The number is expected to reach around 2 million by end of 2015. If we delve further, we can also observe that, In any specified location, there are several NGOs working in the same thematic area and even catering to same beneficiary. Media analysis suggests there is one NGO in India for every 600 citizens.The ratio of NGOs to people (1 NGO for 600 people) currently outnumbers the ratio of policemen to citizens (1 policeman for 943 people). That completely puts to rest our hypothesis number two of no organisations being in similar work area.
That leaves us doubting the Synergy angle. On pure logical/theoretical level, there appears sound logic of why NGO initiatives or their leadership should come together and join hands or rather join their identity to create a synergy for larger impact. The following is the possible advantages of Mergers&Acquisition for NGOs
- Synthesis of stronger Initiatives: Initiatives that are demand driven and result oriented are key for any non profit organisation. Designing a project or an initiative is an elaborate process . It is often possible that a non – profit might not have the right manpower and bandwidth to synthesise initiatives independently. By coming together , and joining their strength,two or more NGOs can develop stronger initiatives that can have wider impact on the social issues in terms of reach and quality
- Reduce cost: As explained above, it is often observed that organisation cater to the same target beneficiaries. Activities such as need assessment are often conducted on the same target groups by different organisation, so are the capacity building programmes or mobilisation activities. Coming together as a single entity helps avoid duplicity of efforts,and also allow organisation to allocate resources more effectively.
- Stronger organisational entity, with management strength and employee base: Any organisation over a time develops its own strengths and is not short of weaknesses. As practiced in business world, mergers can help get over each of their weaknesses and emerge with each others strength which is ultimately beneficial. So the two organisation, brings on board, management capabilities, field insights, technical and functional competencies when they come together.
- Reduces competition for funds , and better chance to sustain financially: Too many people sharing the same pie end up having half full. Same is the case with sharing funds as well. With too many players aiming for the same bowl of funds available, either you end up raising none or you get a share of it. Combined as a stronger organisation, they are increasing the probability of getting a bigger share of funds and subsequently getting identified as an organisation with larger bandwidth.
In the US, such experiments already exists, but is still in an evolving stage. The example of Arizona’s Children Association (AzCA), a child and family services agency is widely discussed when speaking about non for profit M & A in the country. A research report by BridgeSpan Group published in Stanford Social Innovation review tells that ,this nonprofit had under taken seven acquisitions ,each cutting costs up to 40 percent and increasing the number of beneficiaries as much as 100 percent. In the process, AzCA grew revenue threefold, from $12 million in 1998, before it began its acquisitions, to $36 million in 2012.
Coming back to our moot question of why even with so many potential advantages, we fail to hear of any initiatives in this regard in the Social sector / non profit sector in India. Having studied and worked in the sector for a decade, I can attribute four potential reasons for the same :
1 Ownership syndrome: A non profit organisation often is the brain child of one passionate individual , or a small group of such like minded individuals. The promoters are personally involved in the change making process revolving around the issue they are targeting and also with the target group . This attachment makes it often difficult for promoters / founders to emotionally disconnect with the organisation and dilute its identity and culture.
2 Competition: There exists intense competition for funds and other resources within the sector, which are often silently experienced. The spirit of competition or sometimes the absence of it, acts as a deterrent to merge identities.
3 Lack of Awareness : Unlike corporate which have both the big consulting organisations as well as big investment bankers to guide them in identified of synergistic organisations, there is no such support system existing for the NGO sector – due to their inability to pay the hefty commissions. Being an unorganized sector, with very little penetration on web and social media, the initiatives are still unknown to many. Hence identifying a think- alike in different part of the country or city itself is a challenge even if organisation propose to merge/ acquire. There are no exclusive forums like FICCI or CII,(Industry bodies for business), that exist where these bodies can meet on issues pertaining to their sector and network.
4 No precedence: There aren’t many examples on non profits mergers around the world, baring few examples, which are not widely disseminated. Not having a precedence which could create a trigger , is also a possible reason.
The literature available on mergers and acquisitions in the US, points out to such soft barriers as – blending boards, Senior staff and Brands ,restricts the M&A process in the non profit sector. The Study also identifies that raising funds for due-diligence and integration , lack of know -how about the process, cultivating enablers/ matchmakers who can create a market place , and creating awareness among non profits about the potential of M&A to be challenges .
Given the advantages it offer, It is worth exploring for the leadership of Indian non profit sector to seriously consider the option of M&A and Govt agencies and Institutional investors can have a role to play to enable the same.This, I believe, shall take the NGOs in the country to evolve as stronger organisations and the sector to emerge as more organised and surely, more impactful. While my quest for bringing corporate best practices in NGO sector continues, do share with me, if you comes across either a development in this regards or if you have any query on the subject and want to discuss the same. Would be happy to help. Write to me at [email protected]