The Future May Look Different for Many Nonprofit Organizations

Date June 15, 2021

Last year was a difficult year for the world, especially for nonprofits organizations. Many had to adapt and learn how to provide services in different ways. Many saw a huge uptick in the need for their services. And sadly, many lost most or all of their older volunteers, or had to close their doors temporarily or permanently.

Funding has been erratic, with many donors having to cut back on charitable giving due to financial difficulties. Federal, state and local relief funding has provided some support, though smaller organizations struggled through the application processes.

In August of 2020, The Washington Post predicted that between the pandemic and the recession, as many as one third of nonprofits will close or merge before the economy recovers. The demands of 2020 forced organizations to reshape their future, and to contemplate merging with another organization in order to continue their charitable purpose.

Overview of Mergers

Mergers can be a positive thing. The old saying, “Lead from a position of strength,” truly applies in these situations. Rather than looking at a merger as a route out of financial distress or a leadership void, proactive leadership considers mergers an effective growth strategy in strategic planning. Merging two or more organizations serves to increase the depth and scope of services the organizations are able to offer. They may also improve efficiency, help build capacity, and increase the geographic coverage that an organization is able to serve.

Some Questions to Ask When Considering a Merger

Here are some important questions nonprofit organizations should ask when considering whether a merger makes sense:

  • Is there mission alignment between the two organizations?
  • Can mutual merger gains be identified?
  • Does either organization face a founder transition?
  • What are the financial and legal challenges?
  • Will there be considerable technology and policy changes?
  • Are there resources, funding and volunteer time that can be dedicated to the merger?
  • Has each party done its own SWOT (Strength, Weakness, Opportunity, Threat) analysis?
  • Since mergers can take many months, or even years, has an appropriate timeline been considered?
  • Will cultural integration be possible?

Establishing a Relationship Prior to Merging

The most successful mergers have strong working relationships before merging. A shared service agreement between the parties may be a good step to test the waters prior to contemplating a merger. These shared agreements typically cover accounting, finance, development, and marketing staff, and allow executives and staff from each organization to work together. Beyond the limited scope of the shared service agreement, there is generally no commitment to any further relationship between the organizations.

Another option may be to form a collaboration or partnership to share programs or delivery of services. This relationship allows each nonprofit to maximize their complementary strengths, and is typically used for a specific program or purpose. Collaborations and partnerships generally require each organization to contribute funds, resources, or services.

A third alternative may be to create a partially integrated merger. In this situation, two organizations merge but retain their individual brands. This strategy is generally used when a larger organization and a smaller organization with similar missions and services wish to establish a relationship. Often we see these smaller organizations marketed as “an affiliate of” the larger entity. For this type of relationship to work, it is vital that each organization’s stakeholders (board members, directors, donors, beneficiaries and staff) continue to have a voice in their organizations.

A Fully Integrated Merger

With a fully integrated merger, either one organization acquires the second, which is then legally dissolved, or a new organization is established and the original organizations are merged into the new entity. Some factors that must be considered in order to have a successful merger are:

  • All executives and board members must be merger champions;
  • Stakeholders on all levels should be involved in the process;
  • There should be opportunities for funders to participate in and give input into merger planning;
  • Due diligence will take time and may require outside experts such as attorneys and accountants;
  • Open, honest communication is a must; and
  • Consider that an outside facilitator will bring specialized skills to the M&A transaction discussion.

As nonprofits look toward the future, a strategic pivot such as a merger should be considered. The HBK Nonprofit Solutions Team has worked extensively with nonprofit organizations to develop strategic relationships and complete fully integrated mergers. Contact your HBK Advisor or a member of the HBK Nonprofit Solutions Group for more information.

Speak to one of our professionals about your organizational needs

"*" indicates required fields needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.