A merger might appear to be something that occurs mostly in the business world, where corporations frequently unite to extend sales territories, obtain competitive advantages, and increase profits. However, mergers between non-profit organizations can provide similar benefits, such as increased financial resilience and reduced expenses.
Many nonprofit hospitals and institutions of higher learning have investigated and completed mergers in recent years, especially since the start of the COVID-19 epidemic. Indeed, even small nonprofits can benefit from the appropriate combination.
Success Indicators
Successful mergers are founded on solid motivations. You may elect to merge in order to create the stability necessary to carry out your mission and achieve your vision. A merger can result in a stronger organization that is better prepared to withstand adversity. You might also consider merging to lessen competition for funds.
A merger can assist nonprofits in achieving economies of scale, making the combined organization more efficient as well. This could come from combining infrastructures, such as workforce and board leadership, as well as administration, information systems, human resources, and accounting. A merger may also provide you with access to a larger network, as well as more perspectives and experiences on which to base your decisions. It may also allow you to offer more programs or open more physical locations.
Mergers function best when the two organizations have similar missions, values, and work cultures. That doesn’t imply you and a possible merger partner should provide identical services, but you should complement one other. It is also critical to have clearly defined goals for the merger and to make quick decisions that allow for a smooth integration.
Pitfalls to Avoid
Despite all of the compelling reasons to explore a merger, it is vital to realize that mergers do occasionally fail. One common cause is that the merger itself, as well as the new organization, might be significantly more expensive than anticipated. For example, in the short term, you’ll need to fund transactional and integration fees.
Arrangements intended to rescue a failing organization are another red flag. In this case, a larger, more stable nonprofit usually steps in to save a smaller counterpart that, despite its flaws, has something to offer. However, a merger is unlikely to remedy issues such as weak leadership. The best approach would be for the larger nonprofit to buy the assets, or viable portions, of the smaller organization.
Critical Factor
One critical factor in the success of any merger — for- or not-for-profit — is the assistance of knowledgeable, experienced advisors. Contact us to discuss your organization’s plans, and we can assist you in determining whether a merger makes sense.
© 2023
Director, HW Nonprofit Advisors
helen.weeber@hwco.cpa
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