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.