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Will Mergers and Acquisitions Be the Nonprofit Wave of the Future?

Will this economic climate encourage nonprofits to begin thinking seriously about mergers and acquisitions?

Today I participated in a lunch-time session on this subject with a group of mainly Wharton Business School graduates coordinated by Clint O’Brien of Care2 (read Clint’s account of the meeting at http://www.frogloop.com/care2blog/2009/5/20/nonprofit-mergers-and-alliances-dont-try-this-at-home.html) and Peter Van Kelly of Van Allen Associates. I was there with my friend Bill Strathmann of Network for Good and was sitting in for Vince Stehle of Surdna, who had a scheduling conflict.
Four quick points:

I told the group about GuideStar’s latest economic survey for the period October 2008 to February 2009. After decades of unprecedented growth in both the creation of new nonprofits and charitable donations, most nonprofits reported that giving was down from a year earlier at the same period. Worse, many nonprofits appeared unprepared for a prolonged downturn—only about a third of those reporting had so far made adjustments to their budgets. Finally this kicker: 8 percent of those responding to our survey predicted their nonprofit might go out of business for economic reasons. I personally feel that both foundations and individuals contributed to a “surge” of giving in late 2008 to address the first wave of the crisis—something that they will not be able to replicate in 2009. I think we’re in for tough times in the second half of 2009.

With that as background, Bill Strathmann of NFG talked about the potential for mergers and acquisitions. Bill is extremely well qualified to talk on this subject, having been an M & E consultant for several big for-profit firms and having taken on several mergers during his tenure as NFG’s president. Bill pointed out some of the difficulties in undertaking mergers in the nonprofit sector: they aren’t a normal part of our environment, there are rarely financial incentives for staff to step aside, and typical mergers usually result in reducing head counts—something we don’t like to do in the nonprofit world. Bill also talked about why so many mergers fail: cultural issues with board and staff and technical integration challenges. He put it succinctly: mergers are done for money reasons; they fail for people reasons.

Both Bill and I concluded that there are many steps that an organization should pursue before taking on the challenging step of a merger, including doing a serious inventory of assets, exploring potential earned revenue sources and loans, and reducing activities. A number of organizations, such as the Nonprofit Finance Fund, BridgeSpan, and Community Wealth Ventures, are consulting with nonprofits on assessments. Both GuideStar and NFG take extensive advantage of “strategic partnerships,” where we outsource key activities to other organizations that are better skilled or more efficient in certain areas. GuideStar counts its relationship with NFG as one of its most important partnerships.

Finally, both Bill and I acknowledged the contributions of Vince Stehle to nurturing and creating partnerships. Since I would have said the same thing if he were in the room, I’ll tell you what I told the group today: Vince is an eternal optimist about the future of collaboration. He has worked tirelessly to bring funders together (playing an important role in the GuideStar Funding Consortium, for example) and frequently brings nonprofit leaders together to explore opportunities for shared learning, joint ventures, and synergies. He was urging nonprofit organizations to work together even before we realized our future depended on it.

Topics: Communications