While nonprofits and for-profit companies are normally thought of as existing in separate worlds, their life cycles are quite similar, with comparable ongoing challenges and crossroads moments. When nonprofits reach a pivotal milestone, like the retirement of a founder or a need for change dictated by economic realities, the option of merging nonprofits can provide a lifeline or bolster existing strengths. Yet, nonprofits that are open to a merger shouldn’t be constrained by the idea that they can only combine with a fellow nonprofit. In fact, there are frequently reasons why a nonprofit might consider being acquired by a corporation.
Why a corporate acquisition of a nonprofit can make sense?
The reasons why a nonprofit might combine with a for-profit entity are similar to why a merger with a fellow nonprofit can be a logical move: They can increase their effectiveness by gaining scale or cutting costs, they can evolve themselves to capitalize on future trends or they can manage leadership succession.
Is it necessary for a nonprofit to be acquired by a corporation to accomplish these goals? No, but sometimes it can be the most effective strategy. If your nonprofit can advance your mission solely through targeted hires, maybe that’s an option worth considering. However, in our experience, growing by acquisition has a higher likelihood of success than other paths of growth.
For for-profit corporations, acquiring a nonprofit can be a common-sense business move. If a nonprofit’s mission aligns with the corporation’s strengths, the for-profit entity might be able to increase the nonprofit’s operational efficiency and deliver a higher level of service while still creating a profit. In recent years, we’ve most often seen this happen in the health-care field, including with one of our own clients (more on that below).
Questions nonprofits should be asking
Beyond knowing whether a nonprofit can be acquired by a corporation or not, managers and board members can begin by considering some big questions about their organization’s current strengths and challenges:
- Where is your industry going? Who are the public-interest and commercial players active and shaping the future of your field?
- What are ways to have a bigger impact faster? Could an acquisition do more to bolster your organization than other growth methods?
- What are aspects of operations that would cost less to outsource or which could be improved by a for-profit entity? As you consider these aspects, consider whether a corporate entity is better positioned to help achieve your mission than a fellow nonprofit.
- Is succession a near-term issue? If so, who are the candidates inside and outside the organization? Could a merger or a sale be a more effective tactical way to make succession succeed than hiring an individual?
How a corporate acquisition can fulfill a nonprofit’s mission?
Nonprofits often reject out of hand the idea of combining with a corporation, believing that because a company makes a profit, it’s not sufficiently mission-driven. But this self-imposed restriction is sometimes just a lack of imagination about what how a nonprofit can best pursue its goal of public service.
Periodically — let’s say once a year — a best practice for nonprofits should be to scan internal finances and the competitive landscape and see if there are any promising opportunities for a business combination. Managers and board members should ignore whether a potential partner is a nonprofit or for-profit enterprise and look solely at how the organization might complement the nonprofit’s mission.
That’s what happened with one of Oaklyn Consulting’s recent clients. Hospice of Chattanooga was a long-running nonprofit that received an offer from a for-profit business to take over its operations. Managers and board members took an honest look at how effectively their organization was achieving its mission and concluded that the benefits of new ownership outweighed the potential drawbacks. Today, the nonprofit continues to exist, and is using proceeds from the deal to pursue a new community-oriented mission.
At Oaklyn Consulting, we have deep expertise in helping nonprofits chart a path forward during times of transition. Sometimes, the right answer is an acquisition by a corporation, but not always. If your nonprofit is considering an acquisition by a corporation, let us help you evaluate your options so that you have your greatest possible chance of success.