Interest in mergers increased markedly following the outbreak of the COVID-19 pandemic as the pandemic brought unprecedented distress and uncertainty on the organizations’ future viability. Studies in the past have reported successful utilization of mergers in improving the financial standing and delivering the mission of nonprofit organizations in times of economic crises. A problem with the available nonprofit literature is that there is a lack of focused attention on mergers among arts organizations (“arts mergers”), despite arts organizations accounting for ten percent of all charity organizations in the United States.
This study executed a comparative case study analysis of two arts mergers in the United States. A primary objective of this study was to identify challenges and success factors that uniquely arise in the implementation of nonprofit arts mergers. It attends to a hypothesis that arts mergers will entail complexities that are idiosyncratic to the arts and, thus, may not present themselves in studies of mergers between other types of nonprofits. For instance, arts render little economies of scale in their production, even with the development of new methods of production and delivery in recent years. Arts merger implementation likely entails a unique challenge of enhancing operational efficiency while protecting the quality and diversity of the services delivered. This study finds its singularity from previous nonprofit merger studies as it incorporates into its inquiry a conscious consideration of such idiosyncrasies of arts management.
We examined two nonprofit arts mergers, each completed in 2010 and 2012 respectively in the state of Ohio, USA. The first merger conjoined two theatre organizations in Columbus: the Contemporary American Theatre Company (CATCO) and the Phoenix Theatre for Children (PTC). The second merger brought together three performing arts organizations in Dayton: Dayton Philharmonic Orchestra (DPO), Dayton Ballet (DB), and Dayton Opera (DO). The merged organizations currently operate with new names, CATCO and Dayton Performing Arts Alliance (DPAA) respectively.
Findings inform a new set of critical considerations for arts mergers and suggest applicable implications for arts and nonprofit management at large. In essence, the study testifies to the significance of retaining the artistic identities and assets of all organizations involved in an arts merger and the necessity of merger-related support from outside sources in actualizing merger implementation. Findings also testify merits of mergers in increasing the artistic and financial capacity of arts organizations.
CATCO and PTC Case
CATCO and PTC shared a number of pre-merger connections; the organizations were closely located, and they shared the same performance venue, stage designer, and a fair number of community funders and friends in between. All these linkages have played an instrumental role in bringing about the merger, but a few additional factors have really enabled a smooth transition. First, the fact that the organizations shared CAPA – a local arts service organization – for their back-office tasks “turned out to be a very helpful thing in the merger” (former CATCO board member/former PTC board member). Then, the fact that the PTC board president was a past CATCO board member increased the comfort level for both organizations. Outside of the organizations, CAPA provided merger-related services free of charge. The Columbus Foundation provided a $40,000 grant designated to defray merger-related costs. Additional funds have been raised by board members, either by donations or pulling on their social capital.
DPO, DB and DO Case
Dayton Performing Arts Alliance organizations first approached one another for a merger based on their artistic likeness: classical music. Meanwhile, in the aftermath of the 2008 financial crisis, the three organizations had made significant reductions to almost all aspects of their operation in the years leading up to the merger discussions. Although downsizing had not taken place with a conscious expectation for a merger, the fact that the organizations had been “slimmed down” enabled them to minimize lay-offs and be nimble in their strategic maneuver. By combining the three organization’s finances, the merged companies were to strengthen their staying power and cash flow simultaneously. A board member helped the organizations understand the numbers governing the merger decision. Greater financial backing for the merger came from the Dayton Foundation whose $750,000 gift for the merger was matched with $500,000 from an anonymous donor. Later on, Dayton Power & Light Company and the Montgomery County joined the Dayton Foundation with grants totaling $29,050. The grants helped the partners hire a merger consultant.
Case Study Comparison and Findings
A comparative analysis of the two case studies produced a comprehensive understanding of arts mergers with new findings that are uniquely pertinent to arts mergers. First, unlike traditional mergers and acquisitions, all five arts organizations studied showed a strong will to retain their organizational identities and activities to the greatest extent possible past the merger implementation. In both cases, an assurance for the retention of the identities and activities constituted a major premise for pursuing a merger.
Another key finding is that arts mergers face challenges stemming from different management skills and resources that different art forms require in their production and operation. We found that arts mergers entail an accommodation of inter-organizational differences in almost all aspects of management including accounting, contracting, marketing, staging, scheduling, and community service development. This often leaves little room for administrative consolidation and makes arts mergers costly from a purely financial standpoint. Besides, a lot of challenges arise in interpersonal interactions. For instance, creating a new board of an appropriate size proved to be a delicate process for all organizations involved.
Implications for arts management
Surprisingly, arts mergers may entail less of a challenge in a change of leadership or layoffs while a merger can serve as an effective means for building greater artistic capacity and increasing financial staying power. Contrary to trepidation arising from fears of losing artistic autonomy, successful examples show that arts mergers can and may best be implemented in a way that extends each organization’s existing identities and activities past the merger implementation. Despite small room for administrative consolidation and cost saving, arts mergers can help arts organizations retain a greater number of donors, audiences, and talents, and increase market competitiveness through increased artistic capacities. This study also finds that smaller organizations are particularly adaptable to various contingencies that arise in merger implementation.
Arts mergers need not necessarily form between arts organizations of the same art form or comparable size. Rather, opportunities arise in mergers between organizations whose arts offerings are complementary to one another and appeal to different audience segments. Mergers can create opportunities for innovative programming, assuming that the merged organization manages to accommodate different management skills that different art forms require.
In order to ensure successful implementation, findings strongly suggest that arts organizations be extremely prudent in how they involve, utilize, and retain their key stakeholders throughout the entire merger process. The merits of arts mergers are nullified if patrons of the arts are lost as a result. Shared acquaintances often bridge organizations to initiate and move the implementation forward.
However, careful planning is required in bringing together the whole organization, especially the boards. A deliberate plan of communication helps to ensure that the artists, donors, and audiences are adequately informed on how the merger impacts their involvement with the organizations.
Lastly, we find that arts organizations are unlikely to overcome the cost hurdle of a merger in the absence of considerable support from outside sources.
Contact us at mmiam@hec.ca to request a free copy of the full article published in the International Journal of Arts Management, Volume 25, Number 2, Winter 2023.
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