June 2020

Since the Great Recession, nonprofit gurus have talked and written with increasing urgency about the need for nonprofit mergers and acquisitions.  These experts cite the large number—over 1.5 million—of nonprofits in this country.  They talk about the possibility for confusion among donors trying to choose among organizations with similar-sounding missions.  And they bemoan the hesitancy of both funders and nonprofits to talk frankly about the benefits of close collaboration, which often cannot take place without support and funding from a third party. 

Until now, the hand-wringing of these experts has not produced a marked acceleration in the rate of nonprofit mergers and acquisitions in the United States, even though a large number of nonprofits perished in the aftermath of the Great Recession.  Now, as the lasting effects of the coronavirus pandemic on nonprofits become apparent, it is time for nonprofit executives and board members to discuss seriously with their funders about the benefits of shared services and mergers.

Assess Your Challenges

Research shows that while nonprofit executives understand and appreciate the benefits of close collaboration, funders have often supported shared programs, encouraging these initiatives for a couple of years and then moving on.[1]   Strikingly, foundation executives express interest in closer collaboration but are afraid to seem pushy or overly prescriptive in their interactions with grantees.  Clearly, we need a meeting of the minds about mergers and acquisitions, as nonprofits, particularly smaller ones, struggle to survive the effects of the pandemic and the economic hardship in its wake.

Recently, a number of colleagues have asked me for a roadmap that nonprofit board and staff members can use to assess the feasibility and desirability of close collaboration with another organization.  This endeavor takes much time and thought, but here is a high-level outline. 

The place to start is always a larger organizational conversation about strategy and options.  A good question to ask is: What are our biggest challenges? And then list them……

Here are some examples:

1. Raising enough funds this year to meet our payroll
2. Growing our impact
3. Staying relevant in an increasingly crowded field of similar nonprofits
4. Finding enough qualified people to deliver our services

Financial considerations often drive merger and acquisition discussions but should not be the sole criterion.  Most nonprofits face myriad challenges most of the time.  This has never been more true.  Whether hibernating or delivering reduced services, many nonprofits are struggling to survive or will be when their PPP and EIDL loans run out.

Consider the Options

This struggle may require drastic action, such as restructuring or even dissolution.  However, if you have enough runway left to consider other options, please take a look at shared services or mergers.  SeaChange Capital Partners has identified four stages on the continuum from less closeness to more:

• Associations, including coalitions and collaboratives
• Joint programs
• Shared support functions
• Mergers and acquisitions, legally linking the two organizations[2]

Make Sure to Discuss these Areas

If you decide seriously to entertain mergers and acquisitions, here are some areas to take into account:

• Mission.  This is the most important criterion when considering a merger.  It is also an easy place to get stuck, because nonprofits express their mission statements in different ways.  Some call it vision.  Some confuse it with values.  I often suggest that leaders ask themselves, “Why do we exist?,” and use that as the basis for mission comparison.
• Goals.  Are you clear about your organization’s short and long-term goals?  Will the merger assist you in achieving those goals?  Is the sister organization also clear about their objectives?  If not, find another partner!
• Leadership.  The easiest time to effect a merger is when the executive director of one of the organizations is retiring or moving on.  The issue of who will lead the combined organization is often one of the biggest sticking points in merger discussions.  Board members, of course, will be the ones ultimately to vote “yay” or “nay,” so be sure they are intimately involved.  In fact, they should be driving the process.
• Liabilities.  Although financial considerations often start the conversation, it is important to understand fully not just the current but the long-term liabilities of your potential partner.  Too much debt in a potential partner should be a red flag.
• Funders.  Have you just lost a key funder?  Have you acquired a large new one?  How will your funders react to the merger?  Can you bring them along with you?
• Volunteers.  These dedicated folks are often the ones most resistant to change in their beloved organization.  You may not be able to bring them all along with you, but do talk to them up front and try to involve them as much as possible in the process.

Shared service arrangements, mergers and acquisitions require some investment of capital up front, for lawyers, accountants, facilitators, etc.  This is where foundations and wealthy individuals can play a significant role.  If you have identified a potential partner or partners and are serious about pursuing close collaboration, please approach your funders and tell them about it.  There is no time to lose, and you may be surprised by how pleased the funder is.

If you would like advice about mergers, acquisitions or any other strategy options, please reach out to me for a free consultation at vivien@avivastrat.com.

[1] Alex Neuhoff, Katie Smith Milway, Reilly Kiernan, and Josh Grehan: Making Sense of Nonprofit Collaborations, (Boston, Bridgespan and Lodestar Foundation, 2014, pp. 14-16).

[2] Ibid, p. 2