Pro Bono Partnership Pundit: Thinking About a Merger? Good Reasons to Get Legal Advice at the Start

Posted on by Dodge

one to one metuchen

 

So you’re thinking about a merger.

Your board and staff meet with the other board and management, decide that the benefits of combining are substantial, and are ready to move on to next steps. You are working with a merger consultant; you don’t need a lawyer yet, right? They’ll just slow things down and make risk-averse board members unnecessarily worried. Let’s bring them in when we’re ready to “paper” the deal.

Think again. A good legal team will help you make informed decisions, avoid unnecessary steps, and facilitate reaching your mutual goals.

The reasons behind nonprofit mergers are as varied as reasons for any business.  Organizations with complementary missions combine to improve the efficiency and scope of services they are able to provide together rather than separately. Or, organizations delivering similar services to the same served community (e.g., shelter for transitionally homeless) might combine to improve their collaboration in delivering needed services while eliminating their competition for funding sources.

Whatever the reasons for considering a merger, the process of organizing the legal and practical aspects of combining two or more nonprofit organizations involves hard work and often unfamiliar requirements.

But nonprofits often tell us that they “don’t need a lawyer yet,” sometimes followed by an explanation of why they think a lawyer will stifle the process or overly formalize mutually beneficial discussions. But our experience has been that involving lawyers from the start results in better outcomes and smoother transitions. In fact, many of the legal tasks can be accomplished during the business negotiations, thus paving the way to a quicker and smoother conclusion.

Pro Bono Partnership recently assisted a number of New Jersey literacy organizations to merge to form Literacy New Jersey.

Independent teams of volunteer lawyers that Pro Bono Partnership recruited advised eight of the nine merging literacy organizations, so that their boards and staff could understand the implications of the decision on their specific constituency and region.

“It was our job to define how we wanted the merger to proceed,” said Jessica Tomkins, Literacy New Jersey’s COO. “For each of us, it was important that the merger negotiations were collaborative, inclusive, and positive and that they would set the tone for the culture of our new organization. The legal teams were there to help each nonprofit implement that vision by translating those values into a set of legal steps and documents.”

These nonprofits got attorneys involved early in the process, to ensure that not only were the right business decisions considered, but also that the legal pieces would be ready when the actual merger occurred.

“The lawyers helped us keep the process moving forward,” Jessica said. “While we were busy meeting to design our new organization, our lawyers were working with each other on a parallel track, collecting and reviewing due diligence documents and handling other legal aspects.”

Most importantly, Literacy New Jersey is now able to bring more and better literacy services to people throughout New Jersey! Literacy New Jersey noted that the pro bono legal assistance allowed the project to succeed since none of the organizations possessed the legal expertise or could afford the legal costs.

The bottom line is, there are a lot of issues to consider and address in any potential merger. Lawyers will not slow it down, or “mess it up” with unreasonable demands! A good team of lawyers will work with the organizations to make sure that the vision of a unified, efficient, and effective entity is achieved.

>> For more information on mergers, please see our New Jersey Nonprofit Merger FAQs in the Dodge Technical Assistance Resource Library.


20160108_Nancy_025cNancy Eberhardt is New Jersey director of Pro Bono Partnership and a regular contributor to the Dodge Blog. Pro Bono Partnership provides free business and transactional legal services to nonprofits serving the disadvantaged or enhancing the quality of life in neighborhoods in New York, New Jersey and Connecticut. Learn more here.

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