Iván Cachanosky | Chief Economist, Libertad y Progreso
Michel Kelly-Gagnon | President and CEO, Montreal Economic Institute
In the world of for-profit corporations, organizations can grow organically but they can also do so through mergers and acquisitions. Conversely, non-profit organizations typically do not have access to this latter path in order to fuel their growth. But this does not mean that the fundamental justifications for or potential benefits of mergers or acquisitions processes that are found in the business world are absent from the not-for-profit world. For instance, a fragmented market could very well be better served following a round of consolidations. Synergies could be found and efficiency gains could be made. And, in the case of hostile takeovers, less competent management teams could be purged and replaced by better ones.
Anyone who has paid any attention to the global ecosystem of free-market organizations knows that it is populated by wonderful and passionate freedom advocates. However, he or she would also know that some of these organizations to which these fine freedom fighters belong have not reached the critical mass required to be effective through organic growth alone, despite having been around for a long time. In some cases, they become “zombie think tanks,” not really alive, but not really dead either. As someone who has been actively involved in the funding of the general operations of free-market organizations, and therefore in the study of their overall evolution, I can assure you that there are a non-negligible number of them out there.
Clearly, mergers and acquisitions, or formal joint ventures as practiced in the corporate world, would not be a good fit in all cases. Conversely, it would be surprising if there were no instances where it could happen. As a matter of fact, my friend Ivan shows in the article below that successful mergers are entirely possible within our movement.
It is conceivable that certain major donors who give to several different organizations within a given geographic area may feel that this is a path to be explored, if not through outright mergers at least via formal contractual arrangements whereby smaller organizations are prompted to share, for example, certain back office or HR functions. Now, the management of some of these think tanks may, in some cases, be more driven by the desire to preserve their little fiefdom than by anything else, and so donors (especially major ones) may very well have a role to play in these matters in prompting the emergence of these types of synergies.
In a short article, there is no space to study every potential opportunity or pitfall inherent to the application of the mechanism of mergers and acquisitions to the Atlas ecosystem. The point is simply to bring to the attention of our colleagues in the movement that, despite certain legal and operational complexities (which are not insurmountable), they shouldn’t discard out of hand this mode of growth.
As a case in point, below is a concrete example of a merger between three free-market organizations based in Argentina. I have also heard through the grapevine that a merger (actually more of an acquisition) is currently being seriously contemplated in Canada, as I write these lines.
Bottom-line: As a movement that prides itself on being pro-market, we should seriously look at how best to adapt these tools from the corporate world (mergers, acquisitions & joint ventures) to our particular situation. To be sure, there are important differences (including legal ones) between the not-for-profit world and the for-profit one, but that is no reason to completely miss out on the market discipline that stems from such tools and mechanisms.
Merger Success: Libertad y Progreso, by Iván Cachanosky
In Argentina, one case of a merger success is the Libertad y Progreso Foundation (L&P). This organization emerged in May 2011 as a result of the merger of three others: 1) Republican Forum led by Agustín Etchebarne, 2) Market Research Center of Argentina (CIIMA, for its Spanish initials) led by Aldo Abram, and 3) Center for Future Argentine Studies led by Manuel Solanet.
To analyze why the L&P merger was successful, it is important to understand the context in which it occurred. And the context was not the most encouraging one. Manuel Solanet summed it up very well by saying that “the country suffered the consequences of a populist, authoritarian, statist and highly interventionist government.” And Agustín Etchebarne added that the government “had been strongly deteriorating institutional quality.” Thus, the three directors decided to stop working separately, and they founded L&P.
The merger had many positive outcomes and practically no negative ones. The most positive aspect stemmed from the belief that, working together, there would be much more potential for impact than working separately. Manuel Solanet stressed that “each of the merged entities were focused on different angles of the economy and politics,” which meant that they complemented each other. As for negative aspects, the three interviewed leaders responded in tune that they found it difficult to find any. The relationship between them was and still is very good, and any difficulties that arose were quickly resolved.
With a basis of good relations, the other great asset of the merger was culture. Once it was decided to carry out the merger, the starting point was that culture and ideals coincide. Then, the rest is flexible. But there were two other important aspects that were needed to be successful: communications and fundraising.
The three directors are unanimous in their belief that the role of communications was one of the most important things for the L&P Foundation. Solanet stressed that communications is not only important in the life of the foundation, but also in its launch: “True, the key is the cultural battle, but communication also serves to achieve the first objective.” Similarly, Aldo Abram pointed out that most of the resources were initially allocated to this area.
Regarding fundraising, it was very important for L&P Foundation, especially since it was going to confront the government. Many people were afraid of giving money because of this confrontation with the government. The majority of contributors came not from big businessmen, but from individuals, successful professionals, and SMEs. This generated very diversified funding. Nobody provides more than 3% (with few exceptions) of the total budget. A very interesting point was highlighted by Manuel Solanet: “I had managed to form a foundation approved by all the requirements of the law and, in addition, had obtained tax exemption for donors. This meant that people who donated could deduct it from their income tax balance (within limits, of course), but it was a great attraction.”
When asking the directors for their best advice for other similar organizations planning to merge, the answer was practically the same for each of them: “You have to share values and ideals.” When these are shared, then objectives are more likely to be the same. A great advantage of sharing the same objectives is that delegating is easier. In short, it is easier to trust one another, and knowing that you can trust the people you’re merging with is extremely important.
It has been eight years since the merger took place, and by all accounts, it has been a resounding success. To a greater or lesser extent, the three directors are satisfied with the merger and the objectives achieved. For Etchebarne, “long-term objectives are very ambitious, but we are on the right track. We are growing not too fast, but that is what we decided to do. We are every year better than the previous one despite the crises.” In economic terms, the Foundation has also grown. Etchebarne concludes that in a country where mergers are difficult and crises are recurrent, “we are going to leave an institution that outlasts us, that survives us; we are going to prove that there is really a group of capable people who continue to drive forward.”