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Nonprofit mergers: motivations

By Gene Takagi
July 29, 2020

Reprinted from NEO Law Group.

Facing the severe impacts of the current public health and economic crises, many nonprofits are considering mergers and other forms of collaboration as a strategy for maintaining or strengthening their programmatic activities, their brand and clout, and, for some, their survival. Prior to entering into any negotiations around a collaboration, nonprofit leaders should identify and understand the motivations of each party to better assess the options, common goals, differing goals, and relative leverage in negotiations.

A nonprofit may consider a merger to:

Short-term financial benefits

  • address a current or imminent financial crisis that could otherwise cause the nonprofit to close down, terminate services and programs, or lay off employees;
  • improve and strengthen its cash flow position and available cash for investments (whether financial or programmatic), particularly during periods of critical need;
  • acquire new funding sources and leads;
  • access available space possessed by its contemplated merger partner at reduced cost;
  • eliminate competing with its contemplated merger partner for the same important funding sources, some of whom may be pushing for the organizations to merge;

Long-term financial benefits

  • create cost-efficiencies by consolidating overlapping administration, development, and programmatic human and other resources;
  • pursue a new opportunity requiring more resources than it has available;
  • utilize excess or under-used space;
  • eliminate competing with its contemplated merger partner for the same important funding sources, in bidding for the same contracts, and in establishing its brand and reputation with common stakeholders;

Programmatic benefits

  • expand its programmatic reach to new communities;
  • increase its service provision with greater and more diversified resources;
  • develop innovative programs with additional expertise and resources;
  • consolidate programs for improved efficiency and effectiveness;
  • increase its public recognition as a leader in the space;

Advocacy benefits

  • strengthen its influence as an advocate for critically important changes, possibly in response to a significant threat;
  • access additional networks that increase its ability to engage in lobbying and other advocacy efforts;
  • increase its lobbying expenditure cap without violating the prohibition against substantial lobbying;
  • build its knowledge, expertise, and public recognition as a powerful leader on key issues;

Leadership benefits

  • address the departure of the executive or principal leader driving the organization;
  • address the decline of the board’s active participation and/or the reduction of board members to inadequate levels for proper governance and governing body leadership;
  • access valuable policies and practices developed and implemented by its contemplated merger partner;
  • consolidate and coordinate leaders from both organizations, possibly to help assure greater diversity, equity, and inclusion at multiple levels;

Marketing/goodwill benefits

  • strengthen its brand(s) and its recognition as a leader in its area;
  • develop or improve credibility in certain areas of importance and/or with certain stakeholders;
  • signal to its stakeholders its ability to adapt to changing circumstances in furtherance of its mission; and
  • appease funders and other stakeholders pushing a merger (often, not a good reason by itself).

Tags: Management and administration