Q&A on Nonprofit Mergers, Acquisitions and Exits

Is nonprofit consolidation on the horizon? What should nonprofits consider?

  • What the community needs — why an issue exists & persists
  • What the organization wants to accomplish — its vision for the future as well as its mission and its unique value to the community
  • What strategic challenges the organization and industry are facing — what is or could hold the organization back from delivering on the mission

How do merger discussions start in the social sector? What makes them more or less successful? What is the difference between a merger, acquisition or exit in the nonprofit sector?

  • Outright merger (also known as Consolidation) — when two or more organizations bring great strength to the partnership, an outright merger is considered when the organizations are merged into one larger organization. Often, there is a detailed process where each organization is mined for their greatest strengths and a stronger hybrid is developed as the final nonprofit organization.
  • Parent-Subsidiary Merger (also known as an Acquisition) — when one organization is more dominant (in territory and/or financial size) and acquires an existing nonprofit as a subsidiary to gain expertise and/or territory. Often, the dominant nonprofit drives this process and mines the subsidiary to build an overall stronger and more dominant position in the marketplace.
  • Asset Transfer (also known as an Exit) — this happens in one of two ways: 1) a nonprofit organization (often through a strategic review) either decides a program/service/event is no longer needed or is no longer able to be supported strategically by the nonprofit. In these cases, if the program/service/event has value to the community, another social sector organization will take over its operation, or 2) sometimes through strategic review, an entire organization desires to exit and cease operations. In this case, the organization can exit on its own or try to find an existing nonprofit to take over some of its more valuable community work in exchange for assets, which could include physical assets and/or financial assets, such as government contracts.

What challenges can be expected during the M&A process? What are some of the benefits?

  • For Organization:
  • Upfront time and cost for process, legal agreements & planning
  • Overload from merging branding and processes into one future organization
  • Uncertainty over contracts, donors and future financials
  • For the Community & Client:
  • Need for community meetings and public relations to gather input and ensure proper communication
  • For Staff:
  • Culture clash based on different values and norms
  • For the Organization:
  • Better strategic positioning
  • Improved influence
  • Increased financial stability
  • Improved efficiency
  • For the Community & Client:
  • Streamlined client service delivery
  • For Staff:
  • Greater career opportunities

If M&A is being considered, what is the best process to pursue?

What is the best time for legal counsel to engage in M&A conversations? Who else is needed?



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