M&A Nonprofit

Creating Wins & Community Success Through Mergers

By Anne B. Colwell, CEO
Cape Cod Child Development

“Merger” and “Acquisition” seem to be scary words in the nonprofit world, but invigorating words in the for-profit arena.  Could it be the mission-driven nonprofit world is more focused on a smaller, targeted service?  How about the theory that a for-profit organization is just simply more competitive and wants to grow revenue?  Nonprofits are seen as softer, kinder entities, and acquisitions give the impression of negativity and loss.  For-profits may be viewed more as a business model that acts in a manner that drives profit, sometimes at the expense of human capital.  Perhaps the types of professionals that lead organizations tend to fall into two general motivational categories—intrinsically and extrinsically valued.  There, of course, is no actual clear answer—only the remaining question about why the concept of creating more greatness by combining resources has not taken hold in the nonprofit world in the same way as in the for-profit world.

As the CEO of a nonprofit on a 70 mile peninsula with two small islands (good guess—Cape Cod!) and over 1,000 nonprofit agencies, it is clear we can see the opportunities for (nonprofit) mergers and acquisitions.  Our agency is one of the largest nonprofits in the region, especially within the child and family services sector.  Roughly two-thirds of the Cape’s nonprofits provide services to children and families with significant overlap of services and missions.  All of these hundreds of nonprofits have CEOs/Executive Directors and most have financial/human resources management, marketing, development, and administrative support staff—all functioning outside the direct services provided to clients.  Many of these agencies have outstanding leadership and staff but, conversely, many do not.  Many are utilizing effective technologies, evidence-based practices, and good operational excellence processes but, in reality, many probably are not.  There is only one fair reality when we look from afar and in general terms—the total amount of money available is not being spent in the most effective ways.  We know this by just simply looking at the administrative costs of running so many nonprofits in a relatively small geographical footprint.

Let’s take a closer look at the nonprofit world.  In any given year, there will be a dollar figure that accounts for all the financial resources and funding opportunities for nonprofit entities.  It is a sizable figure, relatively speaking, whether it is international, national, regional, or community-based.  At the end of every year (fiscal or calendar), it represents the total investment in the nonprofit service-based sector—regardless of the source of revenue.  If one considers the holistic approach, it is very logical to want to combine all nonprofit revenue streams into one number and understand the value of what that revenue truly means to a community or larger scope, as appropriate.

When we think about potential mergers and acquisitions, we must first consider a collective impact mindset.  If we merge, will it create more services, better quality, enhanced employee satisfaction, improved productivity, or an enriched customer experience?  We seek a win, win, win situation (triple wins), meaning it is a win for all agencies, a win for our agency, and, most importantly, a win for our children and families.  We know we can create more operational efficiency and lower administrative costs but there also must be a mission-driven connection to helping the same demographic.

Not all mergers and acquisitions are losing propositions for human capital—people!  In fact, many mergers and acquisitions provide far greater opportunities for growth and intellectual stimulation.  Although there may or may not be some transition of leaders and staff, in my experience, the newly merged entities realize new outcomes, different challenges, and professional growth that could never have occurred in the previous agency.

As nonprofit agencies struggle with Executive Director Transitions, reduced funding/revenue, and increasing administrative burdens, the answer may well lie in a merger or acquisition.  Yes, it is daunting, scary, and unfamiliar to navigate a nonprofit merger, but the benefits can be dramatic for a community.  The greater ability to provide much-needed food, housing, health, education, clothing, referrals, and all types of services to children, adults, and families can dramatically outweigh the doubt to move forward.

If mergers are not possible, another great option to consider is strengthening strategic partnerships, shared services, and collaborations.  Why not combine efforts, space, and talent if you serve the same demographic in the same area?  Identify the cross-over points of services, how each agency brings unique products/services to the community need and work together to provide more that is similarly missioned.  There may be nothing more impressive to donors, funders, and foundations than to see nonprofit agencies working smarter together.

In the nonprofit world, we are definitely “better together” and “stronger united”—let’s all consider an approach going forward, whether a merger, an acquisition, a strategic partnership, or a simple collaboration, that can change our communities … the world is waiting!