Unlocking Potential: The Benefits and Considerations of Nonprofit Mergers

In the nonprofit sector, the idea of a merger may initially seem more aligned with corporate practices focused on sales expansion and profit enhancement. However, mergers among nonprofit organizations are increasingly proving to be a strategic tool, offering advantages such as enhanced financial resilience and reduced operational expenses.

Over recent years, particularly since the onset of the COVID-19 pandemic, nonprofit hospitals and institutions of higher learning have increasingly explored and executed mergers. Importantly, even smaller nonprofits can reap the benefits of a well-considered union.

Indicators of Success

Successful mergers are underpinned by solid motivations. One key reason to consider merging is to establish stability, thereby facilitating the pursuit of the organization's mission. This union could result in a more robust organization better equipped to weather challenging times. Additionally, mergers can be a strategic move to alleviate competition for funding.

Efficiency gains through economies of scale are another compelling reason for nonprofits to merge. This can involve the integration of infrastructures, encompassing staffing, board leadership, administration, information systems, human resources, and accounting. A merger can also expand the network of the organization, providing access to diverse perspectives and experiences that can inform decision-making. Furthermore, it may enable the delivery of additional programming or the establishment of new physical locations.

The most successful mergers typically occur when the involved organizations share similar missions, values, and work cultures. While service duplication is not necessary, there should be a complementary aspect to the offerings. Clearly defined goals for the merger and prompt decision-making are essential for a smooth integration process.

Potential Pitfalls

While there are compelling reasons to consider a merger, it's crucial to acknowledge that mergers can sometimes fail. One common pitfall is the unexpected high costs associated with the merger process and the subsequent operations of the new organization. Short-term financing for transactional and integration costs is a necessary consideration.

Attempting to rescue a failing organization through a merger can also pose challenges. In such cases, a larger, more stable nonprofit may attempt to save a smaller counterpart with something valuable to offer. However, a merger might not address fundamental issues such as poor leadership. In these situations, a more effective approach could be for the larger nonprofit to acquire specific assets or viable components of the smaller organization.

A Common Factor: Knowledgeable Advisors

A critical factor in the success of any merger, be it for-profit or nonprofit, is the involvement of knowledgeable and experienced advisors. Seeking expert guidance is essential in assessing whether a merger aligns with your organization's plans and goals. Contact us to initiate a discussion about your organization's future, and we can provide valuable insights to help you make informed decisions regarding a potential merger.

How HoganTaylor Can Help

The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.