The Driving Forces Behind Nonprofit Mergers & Affiliations and Why Leaders Should Address Them

Here we are. Halfway through 2022. The new fiscal year has begun. Strategic thinking is in the air. And nonprofits continue to address present-day challenges while planning for the future. 

As organizations navigate the external forces and internal disruptors that are impacting and shaping each sector, we are seeing the pace of mergers and affiliations (M&A) accelerating with no signs of slowing. 

While some organizations are being forced to consider M&A as a strategy for survival, others are embracing it as an opportunity to better serve their clients, build upon the beneficial work they are already doing, expand their reach geographically, and offer more to their employees.

Most nonprofit leaders today are aware of the forces driving mergers and affiliations, but any decision on what force or forces to address can’t be made without understanding how the organization(s) may benefit.

As nonprofit consultants we are seeing the impact that merger and affiliation strategy is having on our clients that have pursued it as part of their strategic plan.

Find your sector below and learn more about what’s driving nonprofit mergers and affiliations and how your organization may benefit.

 Health & Human Services

1. Health and Human Services nonprofits have always faced challenges with regard to access to capital. Technology, facilities, staffing, and equipment are expensive and this can present a challenge for an individual organization functioning in a sector where surplus margins are minimal. Joining forces with another organization(s) through a merger or affiliation gives an organization(s) access to larger amounts of capital resources. 

   The increased access to capital could then result in substantial investments into infrastructure, improved capabilities in physical plant management, the ability to offer more competitive wages/benefits, and access to resources that can enable innovation. 

2. Recent advancements have made the investment in technology to support service, operations, data, quality, partnerships, and the ability to manage at scale necessities of management and decision making. However the cost of investing in technology infrastructure, systems, and staffing is often too high for small to mid-sized Health and Human Services nonprofits to incur.

   A merger or affiliation allows an organization(s) the scale required to adopt and sustain more sophisticated systems with broader capabilities along with the staffing expertise to oversee the network and IT infrastructure.

3. Operational capabilities to manage multiple populations across the continuum of care and the ability to contract for all the components are competitive factors driving consolidation. The market saturation rate is high among providers within the Health and Human services nonprofit sector and organic growth is becoming less of a viable option. 

   Human Services merger and affiliation strategy provides the scale needed to make great strides, from delivering more customized services to managing population health across a larger more expansive geographic area.

Associations 

1. As digital education removes the geographic boundaries that once delineated service areas, Associations now find themselves functioning in a more global marketplace. While this opens up new geographic markets, it also means more competition among associations that are similar in scope of education content, which may be other associations, large for-profit companies, or even colleges and universities.

   Incorporating M&A strategy into the association strategic planning process addresses issues with competition by allowing for access to larger pools of content for improved member value and increased resources for investment in more sophisticated systems.

2. One of the major value propositions of an association is its ability to support the education of the industry it serves. But as education transitions to a more digital platform, those in the sector are now facing the added competition of local, state, and national associations in their vertical market, tangential associations with similar industry overlap, colleges and universities, and fortune 100 companies. 

   Association mergers and affiliations can provide the resources needed to compete for talent and to support a larger membership population.

3. M&A activity is occurring in every industry and for membership-based organizations like associations, that means the number of members is declining as the industries they serve consolidate. With declining membership revenue due to industry consolidation, associations that are looking to increase their membership need to explore new strategies and business models.

   M&A strategy can ensure the association is being intentional about leading the consolidation efforts within its industry of service to add more member value.

Credit Unions 

1. As regulatory requirements mount, Credit Unions face an increase in the amount of capital and investment required to remain in compliance. 

   By gaining access to additional resources through a merger, internal expertise can be hired to oversee compliance as the organization continues to scale and becomes more complex.  

2. The competition for staff and customer base is increasing among peer credit unions, banks, and fin-techs and this is driving like-minded competitors together. 

   Those that are merging are securing a higher probability of sustainability and relevance in a rapidly consolidating industry.

3. Technology is changing the way people engage with financial institutions. Customers are demanding 24/7 access, mobile capabilities, and remote functionality for the ability to conduct transactions from anywhere. On-demand technology solutions such as these require both resources and capabilities. 

   A merger strategy would enable a credit union to grow their internal staffing and add to their technological expertise.

Higher Education

1. Declining enrollment, the 2026 cliff, demographic trends, and the perceived value of education are threatening college brands. With fewer students and higher vacancies the need to adopt new strategies is crucial to sustainability.  

   A Higher Education merger and affiliation strategy can open the door to acquiring additional students and physical plant from smaller struggling schools as a pathway for continued care of students.

2. As colleges and universities transition into the digital landscape their ability to compete globally and position their brand continues to be a real discussion in need of strategic attention. In addition, the rising cost of education is making digital education a more financially viable option. 

   An M&A strategy can diversify capabilities of in-personal and digital learning and assist in the development of a niche strategy to position the brand in known or future areas of study.

3. Consumer demand and need for education is evolving. Employers are now requiring more relevant and job-specific levels of education which is leading to growth with companies like Coursera (a Google partner) and LinkedIn Learning (Microsoft). In addition, students and professionals are demanding more micro-credentialing or certifications to up-skill themselves for career advancement or to become more competitive in the job market. 

   The benefit of M&A strategy can help to expand corporate partnerships and available content for working with companies to up-skill and support the career growth of employees. As consolidating institutions align, they create the capacity to expand services to top employers in their region or throughout the world.