For many years, funders have been calling for nonprofits to merge. There is simply a lot of redundancy in nonprofit operations, ego in the creation and continued existence of some nonprofits, and the possibility to streamline back office operations for more efficient use of the donor dollar. Right now, there is increased competition for funder dollars, many of which are tied in endowments and portfolios with drops in the market. This has resulted in less funding available for nonprofits. Many funders have also redirected funding to emergency relief for organizations directly responding to the current crises, taking away needed funds from operations and from organizations not typically involved in this work, like arts and culture organizations.
All of these situations add to the already existing funder interest in seeing consolidation in the nonprofit space. Some funders have previously made concerted efforts to match and make introductions among the nonprofits that they fund. Others have created financial incentives for them to explore collaboration at minimum, and acquisition at best. These have been in the form of nonprofit workshops and referrals to consultants who can facilitate these conversations, as well as funding incentives for said exploration and strategic planning.
One reason not often considered for a merger or acquisition is preparing the new nonprofit entity to better compete with for profit entities. It may also better position an organization to scale or alternatively go more in depth with its programming or services. Another reality for some are financial struggles and it may become clear that some organizations’ remaining resources can be better allocated through an acquisition or merger.
Occasionally, there are also times when a merger or an acquisition is called for because the reason the nonprofit existed thankfully no longer exists anymore, or exists to the degree that demands standalone nonprofits. For example, nonprofits that served polio patients became obsolete after the disease had been mostly eradicated.
If a structural change is being considered, keep in mind that the new entity does not need to necessarily be created as a 501c3. Perhaps a different vehicle is more conducive such as a memorandum of understanding (MOU), management agreement, administrative consolidation, or joint venture partnership, for example. The final vehicle can depend on a number of factors, including if the two nonprofits have complementary or redundant programming.
It is important to keep in mind that a merger or acquisition is not a failure but rather a reflection of prudent management. Importantly, it can be an opportunity to better serve service recipients or reach more individuals in need. In this way, the new entity is fulfilling the mission, possibly positively growing or pivoting, or going out of business most appropriately.
Not all situations are equal. Small nonprofits may be nimbler at responding than larger nonprofits. Geographic or community driven differences can be lost in a nonprofit which is now designed to cover a larger or more inclusive territory. Bigger, for nonprofits, doesn’t always translate to better. Organizational culture and legacy can be significant drivers of identity that when taken away from a nonprofit, results in a fizzling of support.
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