Association Mergers in the Time of Pandemic
by Jerry Jacobs, Esq., Pillsbury Winthrop Shaw Pittman LLP
For associations facing a bleak future as a result of COVID-19, a merger with another association in the same field may provide a lifeline. Integrating culture and operations poses challenges, but when they can be overcome, the two organizations can emerge better together.
The COVID-19 pandemic has brought many changes to associations, most of them arriving abruptly. No one knows how association will look, or how they will work, in the future. But even amid so much sudden change and unpredictability, one thing seems certain: Associations will survive and prosper. The challenge will be to survive long enough to arrive at a post-pandemic “normal” unscathed by the realities of the current situation.
Revenue is down dramatically for virtually all associations. Many can weather a considerable down period by operating more frugally and tapping into surplus investments, which, after all, are intended for just this purpose. But some cannot. Many associations depend on net revenue from in-person events to make up much of their annual budgets. With that revenue gone, and with no guaranteed date for its return, survival might be tricky.
One solution that might be worth considering is a merger. Virtually every field of business and professional endeavor in the U.S. is represented by multiple associations. Many overlap and compete with one another or emphasize small differentiators over more significant commonalities. Operating separately rather than combining may reduce the advocacy prowess, leadership pools, administrative efficiency and program strength of these associations.
Certainly, there are daunting obstacles to association mergers. First and foremost are the cultural divides. The constituents, leadership and staff of one association inevitably regard those of the other association to be at least different if not inferior. Associations, like most human communities, are tribal; unique affinities pervade each one, engendering loyalty but also isolation. By far the greatest obstacle to association mergers is the inertia of years or decades of looking inward before outward, of a “we/you” attitude toward other associations in the same field.
For some associations facing significant challenges from the impact of the COVID-19 pandemic, the silver lining might be an incentive to explore the opportunity to overcome the cultural divide that has kept them apart from related organizations. In scores of association mergers before COVID-19, the clash of cultures was far less than had been feared. Indeed, the near-universal experience has been that within a few months of the closing of a well-planned and well-executed association merger, the differing cultures have quietly become one culture.
"By far the greatest obstacle to association mergers is the inertia of years or decades of looking inward before outward, of a 'we/you' attitude toward other associations in the same field."
Best of Both Worlds
Bridging the cultural divide is not the only challenge to overcome in combining two or more associations. Each one has its own name, staff, headquarters, consultants, finances, dues schedule, advocacy goals, programs, events, publications and more. Creativity and flexibility are required to carefully maintain the best of each association so the two can be “better together,” a favorite association merger slogan.
A COVID-driven merger, by definition, likely involves associations of differing strengths, perhaps even a “white knight” stronger association “saving” a weaker one. This necessarily requires that the stronger association not overplay its dominance, while the weaker association must be realistic and not seek more from the deal than is fair or achievable.
Assuming the many hurdles can be cleared, there is still plenty of work to do for volunteer and staff leaders of both associations. Priorities include development of a viable business plan, a reliable analysis of approval requirements, legal and financial due diligence reviews to inform and protect board decision-making, and a comprehensive agreement capturing all of the details. Ultimately, the merger must be “sold” to the boards and members of both organizations, so it needs to be carefully planned and compellingly explained.
The Right Incentive
Association mergers are complex and require strategic vision by the organizations’ volunteer boards and executive leadership. It is estimated that there are well over 10,000 national trade and professional organizations with seven-figure budgets, yet the association press reports at most a dozen mergers of those organizations each year. It often requires something special to incentivize the discussions and hard work involved in pulling off a successful association merger.
COVID-19, for all of its horrors, might be that incentive. Even when an adverse event is the impetus for a merger, often the resulting organization can better serve its members and can carry out its mission with a stronger, more stable foundation. For associations worried that the pandemic may jeopardize their continued viability, considering a merger offers one pathway to survival and prosperity.
About the author:
Jerry Jacobs is a partner at Pillsbury Winthrop Shaw Pittman LLP in Washington, DC, and author of “The Legal Guide to Nonprofit Mergers and Joint Ventures, Updated Edition,” published this year by ASAE.. This article originally appeared on ASAE's Center for Research. OSAE thanks ASAE for their commitment to strengthening the association community and its members' business acumen. Please select this link to read the article as it originally appeared on ASAE's website.
Note: The author wishes to thank Alvin Dunn, Julia Judish, Dawn Crowell Murphy, and Lori Panosyan for their contributions to this article.