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.

A nonprofit may consider a merger 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 a merger (often, not a good reason by itself).

Additional Resources on the Blog

Nonprofit Mergers – Part 2: Step-by-Step

Nonprofit Mergers – Part 1: Basic Legal Considerations

Nonprofit Mergers – Due Diligence Items

CLE: Nonprofit M&A: Potential Benefits, Risks, and Alternatives