Denver—After eight years as the executive director of The Spot, a hip-hop program for at-risk youth in Denver, Dave DeForest-Stalls was exhausted.
He told his board last fall to plan on replacing him within four months. The board reluctantly set out to find a successor.
At about the same time, Roxane White, executive director of an agency that serves homeless and runaway youth in Denver, called DeForest-Stalls to discuss expanding services at her organization, Urban Peak. The conversation turned to the prospects of a partnership between their agencies.
And, like two old friends who suddenly find a romantic spark and get married within months, the two agencies did a lot more than work together: In February, they merged.
A number of nonprofits across the nation are doing just that, finding mergers to be the answer to many of their problems. Like the Spot and Urban Peak, nonprofits use mergers to expand their services and reduce administrative costs.
The process can be time-consuming, tedious and even risky, merger experts say, but it can also pay big dividends if done carefully and with the appropriate goals.
“It’s such a jarring idea for some people at the start,” says Tom McLaughlin, author of Nonprofit Mergers and Alliances: A Strategic Planning Guide and a merger specialist with international consulting firm Grant Thornton. “But it’s a good idea if you do it right and for the right reasons.”
Sometimes, small organizations look to national or regional agencies as merger partners so that they can tap more resources for training and support. Mergers also help organizations hire better people, McLaughlin says. Larger organizations – the typical product of a merger – have more resources to draw from, he says.
“Mergers happen because there’s an opportunity for the discussion and there’s a need,” says White, now manager of the Denver Department of Human Resources. “The need is either money or programming. Or both.”
In this case, DeForest-Stalls’ decision to leave the Spot provided the opportunity. The moves that followed offer a case study in the benefits, risks and hassles of a merger.
Each night from Sunday through Thursday, more than 100 youth fill the Spot to produce publications on computers, mix their own CDs, and use studios for break dancing, rapping and mixing. The walls are adorned with graffiti murals. The youth also have access to GED classes.
DeForest-Stalls seized on the idea of a hip-hop program after talking to local youth and started the Spot in 1994 after serving two years as the head of Denver’s Department of Recreation.
Urban Peak was founded in 1988 to serve the growing number of homeless youth in downtown Denver. The agency’s services include street outreach, overnight shelter, meals, clothing, case management, GED classes, job skills and placement programs, a medical clinic and financial aid for higher education. The agency served 752 youth in 2001.
From the outside, there was little difference between the clientele of the two agencies: youth who were intimidating to businesses and to pedestrians on downtown streets. Denver officials and residents wanted them to disappear, or at least stay out of sight and out of trouble.
Yet, while the two programs dealt with some of the most at-risk youth in the city, they had important differences. Urban Peak youth have been mostly white, into goth, punk and heavy metal. “They’re all children with green hair and tattoos,” White says, referring to how her clients were regarded by onlookers. The Spot caters primarily to black and Hispanic gang members.
The Spot did not cater to homeless youth, DeForest-Stalls says, although they often stopped by for free dinners each Thursday. “They’d see a bunch of black and Hispanic youth and hip-hop, and they’d take off,” he says.
Yet the youth were seeking many of the same services. Although most of the Spot youth had places to live, they moved often, bouncing among relatives, DeForest-Stalls says. And both groups of youth could benefit from the GED and life skills classes that both programs offered.
From Urban Peak’s perspective, the Spot provided a central location that would make outreach to homeless youth easier. The Spot is located just outside central downtown Denver, about a half-mile from the pedestrian mall that is the favored hangout for homeless teens.
“The similarities in clientele far outweighed the differences,” says Peter Konrad, a consultant with the JFM Foundation of Denver, which helped to facilitate the merger.
Once White and DeForest-Stalls agreed that a merger was possible, they took the issue to their boards.
“The whole board thought it was intriguing [and decided] ‘Let’s take it to the next step, like dating,’ ” says Rich Rainaldi, a member of the Spot board of directors and a partner with CiviCore, a Denver-based company that provides technical assistance to nonprofits.
The Spot board wanted to proceed cautiously, Rainaldi says: “The board is entrepreneurial. We’ve had a lot of success, and we didn’t want to lose that.”
Members of the Urban Peak board were equally intrigued, but initially skeptical.
“My immediate reaction was, is this idea even conceivable? Is it possible for two agencies and two cultures and two CEOS to merge?” recalls Board Chairman Jim Polsfut, who is chairman of Cordillera Asset Management in Denver. “My assumption was, it was not.”
Ultimately, he says, “Urban Peak and the Spot realized we had staff and board members who could see beyond these initial barriers on behalf of the youth we serve.”
A year ago, both boards approved the merger.
Then the work began.
Rolling Up Their Sleeves
The Spot and Urban Peak were in a good position to begin a merger, according to several consultants who work with nonprofit
“It’s best if the organizations know each other and have some partnerships already,” says Michaela Hayes, a senior consultant and director of marketing for La Piana Associates. La Piana is arguably the most-cited expert in nonprofit mergers. Hayes says the virtual firm (its partners work from home offices) has helped facilitate up to 20 mergers in the past year and more than 100 in the past five years.
White and DeForest-Stalls knew each other before the merger was initiated. The Spot had offered to house Urban Peak’s staff in its own administrative offices about a year before the merger was broached.
“It works best when there’s not an economic crisis, when the organizations can look at synergy,” Hayes says.
McLaughlin, from Grant Thornton, agrees: “The best time to consider a merger is when you don’t need to. It’s important to understand mergers as a strategic tool instead of a last option.”
Struggling nonprofits can successfully merge with other organizations. But they may face additional time pressures, and their bargaining power is not as strong. There is also likely to be greater scrutiny of financial records if they’re struggling, potentially making a long process more tedious.
“If the only reason for doing it is [money], you’re going to run out of motivation real soon,” McLaughlin says.
Neither Denver organization was looking at shutting its doors when the merger was initiated, although both had recently seen government grants dip. DeForest-Stalls says he contacted White for advice about two years ago when he was forced to cut his budget from about $800,000 to $650,000.
“We didn’t look at it as a way to save money, but as a way to expand services,” White says.
Each agency hired attorneys to oversee the merger. They also turned to a mutual friend, Konrad at the JFM Foundation.
“Anyone who ever considers doing a merger has got to find someone like Peter,” DeForest-Stalls says.
The JFM Foundation (assets: $13 million) – named after founders and philanthropists Jan and Frederick Mayer – had made grants to both organizations, including $55,000 to the Spot in 2002. The founders’ son, Anthony, is the treasurer of the Spot’s board of directors. JFM donated Konrad’s time to the merger.
The first step, Konrad says, was determining whether the merger was a “value-added proposition” and if it would promote the groups’ visions of their missions.
Both agencies had assets, real and intangible. In order to grow, the Spot needed to establish itself with procedures and systems that would move it beyond its entrepreneurial feel. For instance, the Spot did not have a human resources manager.
Urban Peak, which also had a transitional housing division in Denver and an affiliate program in Colorado Springs, had the internal corporate structure in place to allow an expansion. What it lacked was a way to meet homeless and runaway kids on their own turf – mostly downtown.
Instead of a standard merger, the two agencies incorporated the Spot as an affiliate of Urban Peak. The Spot board of directors remained under the authority of the Urban Peak board of trustees.
“There’s some genius in the model Urban Peak has, that allows the boards to be independent,” Konrad says. “They’re not just advisory, and they could withdraw if they wanted to. It’s saying the Spot board is really in charge of the Spot.”
Both agencies also had to complete “due diligence,” which is legalese for reading each other’s legal and financial documents. That process took months, DeForest-Stalls and White say.
“Everything was so important. I couldn’t skimp on it. That’s young peoples’ lives,” DeForest-Stalls says. He and White read five years’ worth of board minutes and agency records.
They also had to figure out how to mesh the two organizations. Each had its own accounting system, payroll, health plan and internal operations.
Fleshing out the details is one of the stumbling blocks to a successful merger, experts say. Mergers often fail “if the process meanders” or takes too long, McLaughlin says.
Mergers also fail because of “people issues,” Hayes says. Executive directors may worry about losing their jobs or working with new boards. Board members may also cringe at the idea of being a small part of a larger organization.
“One big challenge with organizations is the egos involved,” she says. “If these issues are put on the table early on ... that’s really the best way.”
For Urban Peak and the Spot, one of the primary stumbling blocks was cultural. The clientele of the two agencies were different; so were the staff.
The Spot runs on a recreation center model, DeForest-Stalls says. Staffers open the doors and welcome whoever walks in. They do not start case files on a youth at the first visit, and they treat clients in a casual setting.
“Our place adapts to the street mentality,” DeForest-Stalls says. “If they’re respectful, the environment is safe, you can do almost anything you want.”
Not so at Urban Peak. It needs to track its clientele closely and have clear, established rules for how clients behave, especially in shelter and housing situations.
“That was one of the biggest concerns of our staff – the rules,” DeForest-Stalls says about the merger. “The Spot has one rule: respect.”
Eventually, the two boards were able to work out corporate and cultural differences. No new rules were posted at the Spot, although its staff adjusted to Urban Peak’s requirements for reports and other administrative procedures.
White and DeForest-Stalls worked to keep the staff and clients involved throughout the process.
They also sought input from some of their private funders. Both organizations rely heavily on foundations, although both have received government support. Several organizations, such as the JFM and the Helen K. and Arthur E. Johnson foundations, had supported both agencies.
White, DeForest-Stalls and Konrad appealed to the funders for their continued, dual support, which was vital for the merger. “They not only understood that, they upped the money to help the merger,” Konrad says.
Mergers cost money, White notes. The two groups had to merge more than mission statements. They had to blend their computer systems, print new signs and brochures, and produce new audits and records.
Urban Peak and the Spot had a merger budget of about $200,000, funded by donors. Merging agencies can do the work without additional grants and resources, but it is difficult, Hayes says.
The boards also had to consider severance packages. When the merger was finalized last February, the Spot dropped three of its nine staffers because of redundancy or incompatibility with the new structure. There was also staff turnover, as three other staffers soon left voluntarily, not as part of a layoff.
“At the time it was extremely scary and emotional,” DeForest-Stalls remembers. “I never would have wanted to have that much turnover in that amount of time. But they were good moves for them as individuals and for the organization.”
White remained executive director of Urban Peak. DeForest-Stalls’ earlier decision to leave the Spot meant there would be no competition for the top post in the expanded organization. After the merger, he took a position with Urban Peak overseeing new ventures.
Ironically, White and DeForest-Stalls left Urban Peak within nine months of the merger. White was tapped by Denver Mayor John W. Hickenlooper, who was elected in June, to head the Department of Human Services. She started in September.
In October, DeForest-Stalls became executive director of A Grassroots Aspen Experience, a youth development program about 150 miles from Denver.
Urban Peak installed Judy Hudson-Trujillo, a consultant and former executive director of another Denver youth and family services nonprofit (the Family Tree), as interim president and CEO while seeking to replace White. Wendy Talley is the new executive director at the Spot.
The operating budget for Urban Peak, including its affiliates, is about $5 million, Hudson-Trujillo says.
The merger took less than six months.
“If it takes more than six or nine months, you’re doing something wrong,” McLaughlin says. It still takes about three years to get all the lingering issues worked out, such as dealing with expiring leases and getting the boards fully integrated.
The first few months after the merger were difficult, DeForest-Stalls and White recall, as the staffs learned new rules and structures. The turning point was placing a client from the Spot in transitional housing run by Urban Peak. “For me, the kid became the symbol for the merger,” White says.
Youth also had to get used to the new system, although the biggest change at the Spot was that it offered more services. They did miss DeForest-Stalls, whom they called “OWG” for “old white guy.”
“It was very hard for them to see David go,” White says. When the merger was finished, DeForest-Stalls left the country for two months. His vacation was planned as part of the transition, Konrad says.
“A, he deserved it. B, the Spot needed to get rid of him” during the transition period, Konrad says.
Early assessments of the merger are positive, albeit preliminary. “Both agencies have learned from one another and have grown into an entity that is different from what both were previously,” says Urban Peak’s Polsfut.
It has worked, he says, because everyone trusted that they were all working for the same mission: “People’s agendas and egos and career paths were put aside on behalf of the higher goal of serving youth better.”
Andrew D. Beadle can be reached at firstname.lastname@example.org.
Judy Hudson-Trujillo, Interim CEO
730 21st St.
Denver, CO 80205
Wendy Talley, Executive Director
2100 Stout St.
Denver, CO 80205
Roxane White, Manager
Denver Department of Human Services
1200 Federal Blvd.
Denver, CO 80204
Dave DeForest-Stalls, Executive Director
110 E. Hallam St., No. 133
Aspen, CO 81611
Peter Konrad, Consultant
P.O. Box 17965
Denver, CO 80217
Michaela Hayes, Senior Consultant
La Piana Associates
147 Waldo Ave.
Piedmont, CA 94611
Tom McLaughlin, Senior Manager
226 Causeway St.
Boston, MA 02114
According to several consultants, mergers between youth-serving organizations are becoming more common. Below are some examples:
• 1994 – The Kids After School program in Hutchinson, Kan., merged with the Boys & Girls Club of Hutchinson.
• 2000 – The Door, an agency that provides comprehensive services for youth in New York City, merged with University Settlement, which provides services to low-income and needy residents.
• 2001 – Big Sisters of Central Indiana merged with Big Brothers of Greater Indianapolis.
• 2001 – Above the Line and Group Home Society, two organizations serving homeless and at-risk youth in Santa Cruz County, Calif., merged.
• 2002 – The Cleveland County Girls’ Club in Shelby, N.C., became a program of the Cleveland County YMCA.
• 2002 – In California, the Ventura County Workforce Investment Board Youth Council merged with the Ventura County School-to-Career Board.
• 2003 – In June, Youth and Family Assistance of San Carlos, Calif., merged with Family and Community Enrichment Services to form Youth and Family Enrichment Services. The organizations cited the downturn in the economy and dwindling grants as the driving force.
• 2003 – In July, Washington, D.C.’s, Metropolitan Police Boys and Girls Clubs merged with the Boys and Girls Clubs of Greater Washington.