Nonprofit Mergers

Q: I am a board member of small, all-volunteer river group, and in the past few years, our old standby financial wells have been drying up. One grant manager even suggested a merger with another organization with a similar mission, which totally caught us off guard.  What exactly would a merger entail?

A: A lot of nonprofits all over the country are mulling this merger idea these days.   The economy is struggling while the numbers of new nonprofits are growing. Nonprofits are looking at mergers as a way of cutting costs, increasing their reach and consolidating the services they provide.  And yes—merging is a popular idea with both foundations and private donors, both of whom are beginning to expect more return on their nonprofit investment than ever before.  From the funder’s perspective, a chunk of money will get a lot more done if strategically placed in one organization than it would if it was broken up and dispersed to three or four.  From the nonprofit’s perspective, a merger can mean more manpower, money, experience and connections, which can, in turn, lead to more influence in a community.
So, many experts are claiming that mergers are the future of the nonprofit world. What does that mean for your organization?

For starters, it doesn’t mean that you need to take a deep breath, kiss your hard-earned, beloved nonprofit organization goodbye and run out and merge with another one tomorrow.  Mergers are very appropriate in certain circumstances, and don’t make sense in others.  Also, there are a lot of different ways that two existing organizations can restructure. This article has a great outline of considerations to take into account to decide if a merger is right for you.

•    Mergers
 A merger actually describes the absorption of one organization into another—a consolidation.  This happens most often when there is an overlap in the niche two different organizations fill in a community.  

•    Joint Ventures
A joint venture describes a formal or informal agreement between two or more organizations to undertake a common project or achieve a common goal.  A coalition is a good example of a joint venture, as is a joint grant.  Sometimes contracts are necessary or prudent to lay out the terms of the venture.

•    Parent-Subsidiary
Parent-subsidiary restructuring means that smaller organizations give up some degree of administrative and/or programmatic work to a larger one.  This centralized administration can increase overall efficiency and can free up the time of subsidiary staff and volunteers for more direct program work.  This is a common type of merger these days, with small organizations seeking out a stable “parent” organization to take over some of the more arduous administrative tasks. Similarly, larger and more prominent organizations may actively pursue smaller organizations to expand their reach.

•    Fiscal Sponsorship
Fiscal Sponsorship is a way that a group without nonprofit status can deliver programming without all the paperwork, expense and administrative burden of filing for nonprofit status themselves.  This is done when an established nonprofit organization agrees to serve as fiscal sponsor which allows an organization without nonprofit status  raise money for a certain project or even for administration of the entire organization.  There is sometimes an administration fee attached to this service, which is agreed upon by both parties.

For more information about mergers, here is another great resource that can help guide you through the decision.