Trends in Nonprofit Mergers: Part 1
Nonprofit Financial Rollercoaster
At the beginning of the pandemic in March 2020, there were a lot of doomsday articles about there being “an extinction level event” for nonprofits because of COVID. We then saw extraordinary levels of support pour into nonprofits because of events like the George Floyd murder, through the PPP loan program and the CARES Act, and from mega donors like Mackenzie Scott. It seems like now is a good time to look back at how all this impacted nonprofit organizations, especially in the realm of mergers and other forms of collaboration.
In 2020 and 2021, many organizations responded to the pandemic by going after relief dollars, which proved to be very beneficial for many. However, these funding streams will soon expire, and organizations are starting to emerge from crisis mode and are thinking more strategically about 2023 and beyond.
However, the improvement of nonprofit balance sheets over the last two years led to a shift in the conversation around nonprofit mergers. Nonprofits who previously might have been considering merger or some form of sustained collaboration found themselves with financial resources that in many cases gave them some breathing room. Boards and staffs have been stretched over the last two years and for many the thought of a strategic restructuring or merger was too much to contemplate when so much else was going on.
Nonprofits negotiate best when they are in positions of strength, and they should seize the opportunity to evaluate strategic partnerships when they have financial reserves providing a sufficient runway to do so. Organizations that have a growth mindset are constantly looking at ways to grow, to serve more clients and customers, and to move into new markets. Resilient organizations see mergers and other formal collaborations as strategies to meet community needs that have never been greater than right now. Boards and staffs are recognizing the need to act.
This is an opportune time for nonprofits to leverage a strong financial position and explore mergers as a strategy for expansion. Some of the benefits they are looking to achieve include the following:
- Staff retention through expanded professional opportunities
- Attracting new donors/supporters
- Having a deeper impact with current clients/customers
- Going into new markets to reach new clients/customers
- Expanding back-office infrastructure/capacity
Nonprofit Mergers and How the Field is Evolving
One of the changes we are seeing over the last couple of years is the speed at which nonprofits are evaluating potential mergers or collaborations. There’s been a lot of education around nonprofit mergers and collaborations. Boards and staffs are better prepared with the tools to have conversations with other nonprofits. They are also better equipped to evaluate partnership opportunities internally because norms have changed, and mergers are no longer viewed as something shameful to consider but forward-looking and strategic.
Many nonprofits come to us now further down the path than in the past. They’ve had initial conversations and they are primed and ready to go. Or, they may have started negotiations and hit an impasse and they need support. This can be tricky when we’re not involved from the start. We need to unravel some pieces and sometimes backtrack a bit to make sure we’re on a firm foundation.
We are seeing opportunities around partnership develop more organically. Many staff and board members are more familiar with mergers than in the past. Some bring experience from the corporate sector. There is a new openness to thinking outside the box.
In the past, the perception around a merger was shaped by the for-profit sector where mergers are driven by increasing shareholder value by cutting costs and jobs. However, in the nonprofit sector, mergers are driven by mission and nonprofits are typically very lean with low expenses and comparatively fewer areas for cost savings. Instead of reducing costs, nonprofits are often looking to expand their impact and as a result bring in new dollars to better serve their mission.
Funders are also more familiar with mergers and are looking to support organizations exploring innovative ways to grow their impact. This helps create a “safe space” for nonprofits to explore strategic partnerships without fear of repercussions. Funders better understand the process behind nonprofit mergers and collaborations and can work with grantees to support them in many cases.