Nonprofit mergers: motivations

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.

Nonprofits may consider mergers 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 mergers (often, not a good reason by itself).

Reprinted from NEO Law Group.