More Than Mergers: 5 Models of Consolidation
Leadership, Nonprofits, Governance
Regardless of organization size or sector, market consolidation is arguably one of the most talked-about topics among nonprofits today.
While the contributing factors driving these discussions are numerous, many Board and Senior Leadership teams have come to realize the importance of developing a strategy to:
Overcome the inability to grow organically due to the size of the organization
Offer more competitive wages and workforce development
Improve service delivery in a geographic area and better manage the experience
Scale in order to invest in technology, data management/integration, and capacity building
Expand existing programs and acquire new programs to improve service
Whether your organization is already in discussions with potential partners or you are in the early stages of seeking partners out, it is important to know that these conversations do not need to be limited to merging.
When exploring your options for improving service or achieving growth, your Team should consider the following 5 Models of Consolidation:
Affiliation Network: Coordinates a value chain of activities with other organizations to support a broader array of services in a more formalized manner.
Service Line Affiliation: Improvement of a specific service, program or desired outcome, achieved through partnering with other organizations.
Joint Operating Agreement: Structured to share services through management agreements or the development of a Limited Liability Corporation (LLC) for purposes of developing a formal organization that can consolidate like-mission organizations, most commonly through shared back-office operations.
Member Substitution: Keeps the brand, board, and leadership of each organization intact. The larger entity will typically become the sole member with the smaller organizations becoming wholly-owned subsidiaries. This is most common in healthcare and human services, with the long-term strategy of becoming a “system”.
Acquisition/Merger: Both organizations become one upon the closing of the deal.
Having options and knowing what they are will provide your Team with the understanding they need to determine the best option for growth and viability for the organization.