By Brittany Harden and Brian Edwards | MiBiz

SAUGATUCK — Lots of people were surprised when the nonprofit Saugatuck Center for the Arts announced last month it had formally merged with Mason Street Warehouse, a nonprofit equity theater group.

That’s because many thought the two groups already were the same organization.

The merger of Mason Street Warehouse and Saugatuck Center for the Arts has created what may be the only performing arts center in the state that offers live theater, art exhibitions, live music, comedy, film, dance and art classes for all interested adults and children. PHOTOS COURTESY OF MOTLEY CAT STUDIO AND SAUGATUCK CENTER FOR THE ARTS

After all, the two groups worked side by side in the same building and presented cultural arts programming at the same facility, a renovated former pie factory in downtown Saugatuck. Their schedules also seemed to work in tandem, with SCA presenting live entertainment and film screenings in the 400-seat theatre in the fall, winter and spring months and MSW filling the stage with theater during the summer.

“A lot of people thought we were one and the same,” says Kristin Armstrong, executive director of the Saugatuck Center. While the notion of merging had been discussed in the past, she says, “the timing had never been right for a variety of reasons, mostly because we were young institutions.”

That changed on October 1, when the two organizations merged with the intention of bringing a stronger, more energetic arts organization to serve West Michigan. The merged organizations now operate what may be the only performing arts center in the state that offers live theater, art exhibitions, live music, comedy, dance and art classes for all interested adults and children.

SCA’s Armstrong is the executive director of the newly merged entity. Kurt Stamm, who had served as artistic director of MSW, assumed the same responsibilities for the merged organization and will oversee theatrical productions along with live music, comedy and dance events.

While businesses consummate mergers frequently, that kind of transaction happens less often in the nonprofit arts world. That could change amid the sluggish economy and downturn in charitable giving. A Bridgespan Group poll of nonprofit executive directors found that 20 percent of the respondents said mergers could play a role in how they respond to the economic downturn.

In the merger of SCA and MSW, the steps the two groups and their respective boards took provide some insight into a process that may be repeated again locally over the next few years.

What began with casual conversations 13 months ago ramped up earlier this year when the boards decided to move ahead with a thorough analysis of what the merger might mean to each organization. The boards spent about four months on the due diligence process, meeting every two weeks to dive into different topics such as bylaws and governance structure, programming, operations, marketing and finances.

At one meeting, the SCA board asked the MSW how they build a musical show. That exercise helped SCA board members and executives understand the difference in scale and the cost to finance a two-week run of equity theater versus, say, a one-night concert by Joan Baez or the Cowboy Junkies.

“We don’t build shows, we buy them,” Armstrong recalled. “The financials are so different with an equity theater — there are a lot more zeroes after the dollar sign with their shows compared to ours.”

That difference in business models was something that the financially conservative Saugatuck Center board really needed to wrap its head around, Armstrong says.

“It was never a question of analyzing the product and asking if it was any good. We knew the product was great and fit into our product mix,” she said. “But we had to ask ourselves, ‘Do we want to take on that kind of risk?’”

Part of that risk analysis included donor funding. No one on either board assumed, for example, that a donor who had traditionally given $500 to MSW and $500 to SCA would give $1,000 to the merged organization.

The boards looked carefully at each organization’s donor base and found that about 30 percent of donors crossed over between the two groups. While they were wary that those donors wouldn’t maintain the level of support for the merged organizations that they had for them as separate entities, a closer analysis and several conversations with donors helped allay those fears.

“We felt that there was plenty of room for growth without cannibalizing each other’s donor base,” Armstrong says.

Ultimately, the boards of both organizations saw the merger as an opportunity to integrate their individual strengths.

“I think [SCA] has a great foundation with strengths in fund development, marketing and organization. They have a great product that fits into our mix,” Armstrong says. “When you take those two pieces and snap them together, it should work.”

Unlike many mergers, this one was not built on cost savings through integration.

“As two small businesses, we were already running pretty lean. We couldn’t meld HR departments or IT departments because there were none,” Armstrong says with a laugh.

The organizations were able to generate some cost savings on insurance and maintenance, but the primary opportunities have been related to organization building and programming.

Both organizations had staff members that were “utility infielders” who did a little bit of everything, in Armstrong’s words. The merger provided the opportunity to tear apart job descriptions and realign people’s responsibilities in a more specialized way. That is creating some new positions, including a full-time marketing person and an education manager.

The groups also see the opportunity to layer programming in a sophisticated way, Armstrong say. For example, MSW could present an iconic Broadway show like “Chicago” that could be complemented by an arts exhibition about the roaring ’20s, a night of jazz, and a screening of a documentary about Bob Fosse.

The changes in the organization could also result in a more integrated schedule year-round, with live entertainment on stage during the summer months and theatrical productions during the other seasons of the year.

“The community will certainly benefit from greater choice on our mainstage,” Armstrong says. While fans may notice more choices onstage, both groups have been careful to make the transition seamless offstage. The phone numbers remained the same and the staff members kept their usual offices.

“It won’t look that different to guests, but behind the scenes we’re now working as one big team to produce those shows plus the rest of our year-round programming for children and adults,” says Kristin Armstrong.

Like most mergers, this one took considerable time on the part of executives, staff and board members, despite the fact that the two organizations were intimately familiar with each other from the outset. Armstrong says other nonprofits considering the merger route would be wise to take time to make sure there is a good fit in terms of product, operations and culture.

“Really, for us, it was about analyzing,” Armstrong says. “We were a $500,000 small business, effectively, and we were looking at merging with another small business of the same size. We had to decide if we could do this and get it right.”