Key to Successful Nonprofit Mergers is Having a Solid Financial Platform (2024)

FAQs

What are the benefits of mergers for nonprofits? ›

This increased stability can contribute to long-term sustainability. Mergers can also help nonprofits navigate financial challenges. Merging can lead to cost savings through economies of scale, shared administrative expenses and reduced duplication of efforts.

The Eleanor Foundation ($5–6m) merged into the Chicago Foundation for Women ($6–7m) in 2012 to form a “strategic alliance.” The two “joined forces” because together they could do far more to help female-headed households reach the middle class than operating separately.

Nonprofit Merger

In each merger there will be a “surviving entity” and one or more “disappearing entities.” The surviving entity enjoys the assets and legal rights of both merging organizations and takes on the responsibility of any remaining potential liabilities and legal obligations of both entities.

Financial benefits of a merger or acquisition can include tax optimization, such as changes in tax rate via geographical relocation of company headquarters, tax-saving benefits or tax loss carryforwards, improved access to capital, such as the ability to get better interest rates and access to other capital markets, ...

A Larger Market Share

One of the most obvious benefits is the increased market share a merger or acquisition can bring. By hoovering up other organizations within your industry, you're ensuring a greater slice of the total market is yours. Take the now-infamous merging of Exxon and Mobil in 1998.

Joint Ventures

A joint venture is historically used when two nonprofits want to collaborate on an isolated program or project. When we say “nonprofit collaboration,” this is what people think of most often. This can be beneficial in a variety of ways.

Organizations that have regular financial struggles or face ongoing financial instability can't meet the goals of their mission. A struggling nonprofit might have to close its doors if it can't find the money to operate. A merger, then, could be a good solution to ongoing financial struggles.

Yes, a nonprofit organization may create a subsidiary with either a for-profit or a nonprofit structure. In some situations creating a subsidiary may make sense.

A merger is a statutory term that refers to when two organizations go forward as a single firm rather than remaining separately owned and operated. An acquisition describes a transaction where one organization purchases another and incorporates it into its operational structure.

Can one nonprofit acquire another? ›

Increasingly, nonprofits are considering merging with, acquiring, or being acquired by other organizations. These types of transactions in which an organization acquires the equity or assets of another are generically referred to in this article as “M&A,” or when a nonprofit is involved, “nonprofit M&A.”

Unlike for-profit companies, nonprofits cannot issue stock or stock options to their employees, as they do not have shareholders or profits. However, some nonprofits may offer other forms of equity, such as phantom stock, restricted stock units, or profit-sharing plans.

Despite growing support for nonprofit mergers, promising combinations often stumble over three emotionally charged issues: getting the boards aligned, finding roles for senior staff, and blending the brands.

Similar to the situation involving a for-profit business combination, as the nonprofit commences discussions with another entity regarding a possible business combination, a letter of intent or term sheet (that is often non-binding) helps structure the proposed transaction and process for the combination.

Whatever the rationale, the process and documentation necessary to combine two nonprofit organizations will look similarly to that involved in a “conventional” business combination in the for-profit sector; lawyers for both parties may be engaged to prepare a letter of intent, conduct due diligence, negotiate ...

A merger is a statutory term that refers to when two organizations go forward as a single firm rather than remaining separately owned and operated. An acquisition describes a transaction where one organization purchases another and incorporates it into its operational structure.

a) Shareholders: Shareholders of the acquired company typically benefit from the acquisition as they receive a premium for their shares, which is higher than the market value before the acquisition. This premium represents the perceived value and potential synergies of the acquisition.

The combination of the two businesses' incomes will provide greater financial power, enabling them to occupy a larger share of the market and have more control over customers by reducing competition. The goal of any merger or acquisition (M&A) is to reduce expenses and increase profits.