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Mergers and acquisitions (M&As) are increasing in the nonprofit world. When agencies face extreme financial risks or growth opportunities, merging with another entity or acquiring a new agency is sometimes the best solution to mitigate loss or leverage development.

  • If your nonprofit joins with another nonprofit to create a new and separate organization, you are merging.
  • If your nonprofit absorbs another nonprofit to expand your own organization’s reach and value, you are acquiring.

Many people assume M&As are transactions for the private sector alone. They operate differently in the nonprofit versus for-profit world, but they enable capacity building for both. In this article we present considerations for any nonprofit contemplating a merger or acquisition.

How are mergers and acquisitions different for nonprofits?

M&As in the for-profit world are focused on gaining new capital and competitive advantage. Shareholders benefit financially, and market reach grows. M&As in the nonprofit world are focused on accomplishing a mission by bringing together resources from two organizations that provide similar programs or serve a similar audience.

Because advancing a cause is the heart of a nonprofit, M&As should take place more than they do; they allow for increased impact through the combined resources of like-minded entities. M&As eliminate waste and unnecessary competition, therefore allowing a new nonprofit to “do more with less” and achieve their goals much faster.

What is important to consider before a merger or acquisition?

Most nonprofits are clear on mission alignment before they join forces. Here are some additional considerations to ensure a successful merger or acquisition.

  • Leadership compatibility. When two senior leader teams come together, it is critical that they agree on the priorities of the new entity and that their leadership styles are complementary. Additionally, the practices by which these individuals lead must be congruous.
  • Culture alignment. Likewise, the ingrained attitudes, values, and beliefs of each nonprofit must be harmonious. And the larger systems in place such as distributed versus non-distributed power, centralized versus decentralized operations, or agile versus bureaucratic processes matter when it comes to the new organization’s culture.
  • Policy and platform consensus. From benefits and compensation structures to the tools used to get work done, it is important for any nonprofit considering an M&A to thoroughly explore these operational details. Human resources policies, technology systems, and staff expectations are important components of this discussion.

What can you do to prepare for a possible merger or acquisition?

We are strong proponents of preparedness. Use the following strategies to determine if your agency is ready.

  • SWOT analysis. This simple and effective tool outlines your organization’s strengths, weaknesses, opportunities, and threats. It can highlight whether the opportunity or the threat is great enough for your agency to consider a merger or acquisition.
  • Strategic plan. Used in conjunction with a SWOT analysis, a three-year strategic plan helps your organization plan for a merger or acquisition by setting priorities, creating short- and long-term goals, and ensuring an intentional strategy sets the vision for the new entity.
  • Surveys. All stakeholder groups must be on the same page. You must listen to all voices. Interviews, focus groups, and surveys are effective tools for gathering stakeholder input.
  • Assessments. Finally, to ensure your organization’s systems are ready for a merger or acquisition, try a culture assessment. This tool will help you determine whether you are compatible with another entity.

Mergers and Acquisitions can increase your organization’s impact by helping you accomplish your mission more effectively and efficiently. But there are a lot of risks involved. Due diligence is necessary when preparing for a merger or acquisition. We are experts in assessing a nonprofit’s people, planning, process, and performance systems to ensure congruency pre-merger or acquisition. Contact us today to learn more.

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