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Working Better Together

CAPLAW’s Guide to Mergers and Shared Services

Introduction

Increasingly, Community Action Agencies (CAAs) are exploring shared services and mergers as strategies to improve their sustainability and enhance their efficiency and effectiveness. CAPLAW has prepared this guide to help CAAs and other Community Services Block Grant (CSBG) organizations better understand these arrangements. The guide includes questions and answers on shared services and mergers, as well as additional resources, including case studies, sample agreements, information on books and online publications on these topics, and more. Review the various Q&A in this guide to get an overview of shared services and mergers, or click on the particular topic and questions that are of interest to you. Stay tuned for future updates; as CAPLAW gathers more information about these topics, we will add additional Q&A and resources to this guide.

Why consider sharing services or merging?

Why are CAAs talking about shared services and mergers?

While attempting to meet the continuing need for their services in the wake of the COVID-19 pandemic, CAAs must contend with the scarcity of unrestricted sources of funding and intensified competition for government grants. At the same time, CAAs are expected to demonstrate the measurable impact of their work, to exercise effective financial oversight and to fully comply with the many laws and regulations that apply to their operations. One means of maximizing limited resources and meeting increased funding source expectations for effectiveness, efficiency and oversight is through shared services and mergers. Under the right circumstances, sharing services or merging can help a CAA enhance the effectiveness and efficiency of its governance and operations, strengthen its financial position, augment its engagement and standing in its community and, ultimately, expand the breadth and depth of its impact. Interest in these arrangements among CAAs has risen in recent years due in part to federal sequestration and other government funding cuts, the retirements of a number of CAA executive directors, and increased openness among CAA boards and executives to new and innovative models of organizational sustainability.

What do the terms "shared services" and "mergers" mean?

For purposes of this guide, the term “shared services” refers to various types of arrangements between a CAA and one or more other organizations to share administrative or programmatic functions or physical resources. A CAA might share services with another CAA or with a different nonprofit organization. Examples of shared administrative functions include: sharing an individual staff person (such as an executive director or information technology (IT) director); sharing an entire department (such as a fiscal department or human resources (HR) department); or engaging another organization to provide all of the management functions (executive director, fiscal, HR, IT etc.) needed to operate the CAA. Yet another example of shared administrative services might be a joint purchasing arrangement with another entity that enables both entities to obtain more competitive pricing than either could obtain on its own. Examples of shared programmatic functions might include sharing an individual staff person, such as a weatherization director, or an entire department, such as a weatherization department, including the weatherization director, crews and inspectors. Sharing physical resources might include sharing office space or equipment, such as vehicles, blower doors, or other weatherization equipment.

Although the term “merger” technically refers to a situation where one or more organizations transfer their assets and liabilities to another organization and then dissolve, this guide uses the term in a more generic sense. As used in this guide and the accompanying CAA merger case studies, the term “merger” refers to various methods of combining the programs, assets, or entire corporate entity of another organization with a CAA. The merger portion of this guide and the case studies on CAA mergers provide examples of various ways CAA mergers may be structured. Note that the merging organizations do not both have to be CAAs; a CAA may merge with another CAA or with another type of organization altogether.

Ultimately, what should we hope to achieve by sharing services or merging?

Whether a CAA pursues a shared service arrangement or a merger, the ultimate goal should be to further its mission. This could mean expanding the number of people it serves, delivering new types of services, or serving existing clients more effectively and efficiently. Some of the results CAAs may achieve by sharing services or merging are:

  • Improved, expanded, or preserved services and programs;
  • Strengthened financial position;
  • Enhanced administrative capacity; and/or
  • Improved visibility, brand, image, and reputation.

A CAA considering sharing services or merging with another organization should move forward only if the resulting arrangement will build on the strengths of each organization and lead to a result that could not have been achieved without the two organizations joining forces.

What role might a state CAA association play in facilitating CAA shared services and mergers?

A state CAA association can play a vital role in facilitating shared services and mergers among CAAs. The association’s executive director has a unique perspective on the circumstances of the association’s member CAAs. He or she can often identify CAAs that might make for good partners and suggest specific opportunities to share services or merge. The executive director can also help initiate conversations among CAA executive directors about sharing services or merging; these initial conversations can help build relationships and trust, both of which are necessary for exploring the possibilities of sharing services or merging. In addition, a state CAA association can sometimes secure funding for certain costs of sharing services or merging – such as costs to hire a consultant – by leveraging its relationships with the state CSBG office and other funding sources.

What role might a state CSBG office play in facilitating CAA shared services and mergers?

Like a state CAA association, a state CSBG office can play a key role in facilitating CAA shared services arrangements and mergers. A state office can encourage CAA executive directors to reflect on the viability and sustainability of their organizations and on the possible benefits of sharing services or merging with another organization. They can bring CAA executive directors together to discuss the prospect of sharing services or merging. States can also help fund the costs of exploring and implementing shared services arrangements and mergers – for example, through grants of state CSBG discretionary funds, or by granting prior approval for CAAs to use a portion of their annual CSBG grant for these costs. Finally, a state office can proactively adopt regulations, and, if necessary, advocate for changes in state law, that will provide a clear merger approval process and ensure that the merged entity will not receive less CSBG funding than the combined amount of CSBG funding received by each CAA before the merger.

This resource is part of the National T/TA Strategy for Promoting Exemplary Practices and Risk Mitigation for the Community Services Block Grant (CSBG) program and is presented free of charge to CSBG grantees. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number 90ET0433. Any opinion, findings, and conclusions, or recommendations expressed In this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.