The Benefits of Merging Nonprofits
The leaders of nonprofits often have similar personality types as their for-profit counterparts: They’re charismatic, driven individuals who convince others of the importance of their vision. Though many nonprofits grow and experience prolonged success, a significant percentage (30%) do fail within their first decade. Reasons can include the organization not effectively managing a crossroads moment, such as the founder’s retirement or changing economic realities.
Considerations Before Merging Nonprofits
A merger is not something an organization should casually enter into. It’s important for nonprofit boards to first understand their organization’s current financial condition and future aspirations, as well as the specific traits they’re looking for in a partner organization. If you’re the leader of a nonprofit, the process can start by answering these questions:
- How can a partner organization help you achieve your goals? Start by identifying your nonprofit’s key objectives, which don’t necessarily have to be ambitious. It’s completely reasonable for your biggest organizational challenge to be something as common as leadership succession. Think about how a partner organization could help you — and how you, in turn, could help them.
- How healthy are your organization’s finances? If you’re planning to enter merger discussions with a fellow nonprofit, it’s vital that you know your numbers beforehand and are able to articulate your financial situation in a way the other party can easily understand — in particular, describing your revenue streams, and what activities you spend money on to further your mission. If there’s room for improvement with your income and expenses, the best strategy is to be completely candid with a potential partner about your current financial status and the potential benefits of combining organizations.
- What are you looking for in a partner? A nonprofit merger is not unlike a marriage, and as with any marriage, it requires two partners whose worldviews and personalities are complementary. If your organization’s management style or workplace culture are considerably different from an organization you’re courting, it’s worth taking a step back to consider whether a merger would be an unnatural fit, even despite outward similarities. A merger should have clear, tangible benefits for both organizations — reducing overhead costs, for instance, or combining employee skills or aptitudes to elevate your social impact.
Involving Key Stakeholders In a Nonprofit Merger
For a nonprofit merger to proceed, it also requires the support of each organization’s board of directors, which has a fiduciary obligation to make decisions that are in the nonprofit’s best interest. It’s not always easy to convince board members of the wisdom of a merger with a fellow nonprofit, especially since there’s typically not a simple metric like money in this kind of transaction. However, a case can certainly be made by focusing on the combined organization’s strengths and the deal’s potential to strengthen both organizations’ resources and effectiveness.
Board members aren’t the only important stakeholders who need to be invested in the success of a potential merger. Volunteers, donors and beneficiaries are the lifeblood of successful nonprofits, which is why it’s important to understand those individuals’ perspectives early on.
Lastly, staff members can’t be overlooked during a nonprofit merger. Much of the day-to-day work of integrating the two organizations will fall on their shoulders, so it’s crucial to maintain an open line of communication so they understand how they’d be personally affected and what changes would take place to the organization’s leadership structure. Not doing so can damage morale during a period when a nonprofit needs to be as unified as possible.
How Oaklyn Consulting Assists With Nonprofit Mergers
Navigating the complexity of nonprofit mergers requires the assistance of M&A professionals. Our advisors at Oaklyn Consulting are highly experienced at serving nonprofits on both the buying and selling sides. Here are two recent examples of favorable mergers that have been achieved with our guidance:
- We assisted a buy-side nonprofit that was finding it challenging to win new business due to its industry’s emphasis on state government contracts. Working with our client, we identified a prospective partner, a small for-profit company working in a similar field whose owner was planning to retire. We helped negotiate a merger that elevated our client within its industry, allowing it to apply more effectively for contracts and pursue its mission more successfully.
- We assisted a sell-side nonprofit that had been approached by a for-profit business about a potential purchase. The nonprofit had been in existence for many years, and although its board of directors had not been considering a change, the buyer’s offer served as a motivation for the board to consider the organization’s current impact and how the deal proceeds might enable it to further its mission. With our help, the nonprofit decided to move forward with a sale, allowing it to close a chapter and embark on an exciting new phase.
Although nonprofits have different ambitions than for-profit organizations, both groups share an interest in operating sustainably and continuing to serve their respective bases. If your nonprofit has its sights set on bigger things or simply wants to continue successfully operating through challenging times, a merger can be a wise strategy that allows you to achieve your mission long into the future.
