Debunking the “hostile takeover” myth
In the for-profit world, the term “merger” has a negative connotation, conjuring up thoughts of hostile corporate takeovers and big layoffs, but in the nonprofit world, it’s a different story. In the last year, we’ve seen nonprofits come together in ways that actually helped them better serve the community. In fact, a recent study that analyzed 25 nonprofit mergers found that 88% of nonprofits that merged felt they were better at achieving organizational goals and increasing their impact after the merger. So how do you know if a merger might be a good step for your nonprofit? Let’s walk through a few scenarios that a merger could help bring positive change.
You’re ready to expand your expertise or service area, but also want to shrink administrative costs.
Let’s say two nonprofits who were looking to merge served similar populations, but they had footholds in different counties. For them, merging would allow them to serve both service areas, while shrinking their administrative costs by having one set of administrative costs and staff instead of two. They can also save time and resources by completing one 990, one annual report, etc. instead of two. Merging back offices can allow you to shrink overhead, while still gaining the new insights, programs, or expertise of the other nonprofit. By bringing the programs and expertise of both nonprofits together, you get the best of both organizations.
A nonprofit is closing its doors, but wants to provide property or assets to another nonprofit.
In some cases, it’s time to close a nonprofit’s doors for good. But merging with another nonprofit can ensure the assets and property of the dissolving organization can still be used for a great cause. Dissolving nonprofits provide their assets to another nonprofit, regardless of if they merge or not, but the merger context can allow them to transfer all assets and debts– like a mortgage on a property– so the remaining organization can use that for charitable purposes.
You have a smaller nonprofit that would greatly benefit from having the resources of a larger nonprofit OR You have a larger nonprofit that would benefit from a specialized program or expertise a smaller nonprofit has already.
When a smaller nonprofit is looking to merge with a larger organization, it can provide great value to both parties. One example would be a large youth-serving organization merging with a smaller youth-serving organization that provides a program the larger organization hasn’t offered previously. The larger organization gains a new program they can offer the community, and the smaller organization expands the amount of resources they have so they can provide that program more efficiently. And contrary to popular belief, the smaller organization doesn’t have to “disappear.” Some organizations choose to keep the smaller organization name as the name of the program, or when merging, will change the name of the entire organization to reflect the offerings of both organizations.
While these are three common situations we see, always keep in mind that due diligence is key in any merger to ensure that your nonprofit is truly made better by the merging process. Our attorneys are experienced with nonprofit mergers and would be happy to talk with you about potential mergers or mergers already-in-progress.