Why Are Nonprofits Merging? Recent Trends and Theories
Nonprofit mergers in Denver have recently surged. In the last year, we’ve seen the following notable examples throughout various causes.
The Kirkland Museum of Fine and Decorative Arts merged with the Denver Art Museum
Aurora Mental Health & Recovery joins forces with the Asian Pacific Development
Clinica Family Health and Mental Health Partners announcing their merger.
This trend raises an important question: why are these organizations deciding to merge now?
What are the Benefits of Nonprofit Mergers?
The Kirkland Museum merger announcement highlights the goal of "optimizing resources to deepen visitor engagement and extend the reach of educational programming." Merging with organizations that share similar visions, values, and impact goals can create significant benefits.
Similarly, Clinica Family Health and Mental Health Partners’ merger is driven by their combined expertise in physical and mental healthcare. In their announcement, they explained that "the merger… is about creating financial sustainability and improving access to the spectrum of health care services the merger will allow the two organizations to sustainably deliver more comprehensive care to their communities.”
Aurora Mental Health & Recovery's merger with the Asian Pacific Development Center aims to enhance mental health services and outreach to the Asian Pacific community. According to their announcement, "This merger will allow us to better serve our diverse communities by combining our resources and expertise."
All three mergers seek to create financial stability and improve the quality of their services long term.
Key Factors Driving Nonprofit Mergers in Denver and Across the United States
Many factors influence the timing and types of nonprofit mergers.
Economic Pressures and Financial Instability: Nonprofits in Denver, as well as across the United States, face ongoing financial challenges such as increasing overhead costs and insufficient funding. These financial instabilities often drive organizations to merge as a strategic solution to achieve economies of scale and sustain operations.
Program Overlap and Strategic Mission Alignment: When nonprofit organizations have overlapping programs or closely aligned missions, mergers become appealing. Strategic realignment through mergers allows these organizations to streamline services, enhance operational efficiencies, and improve service delivery. By joining forces, they can amplify their impact and better serve their communities.
Desire for Larger Impact: Mergers can enhance an organization's reach and effectiveness, enabling them to fulfill their charitable purposes more robustly. This desire to create a more significant impact often motivates nonprofit mergers.
Funding Losses and Economic Trends: The loss of significant funding, such as the end of American Rescue Plan Act (ARPA) funds, poses a considerable challenge. For instance, Denver metro governments face an estimated $250 million funding gap for programs launched with ARPA funds, echoing the financial strain experienced after the end of ARRA funding following the 2008 Great Recession. This financial cliff can push nonprofits towards mergers to stabilize their finances.
Demographic Shifts and Leadership Changes: The retirement of Baby Boomers, who often hold key positions in nonprofit organizations, creates leadership gaps and can drive mergers. With around 10,000 Baby Boomers retiring daily, this demographic shift significantly influences mergers and acquisitions within the nonprofit sector.
Expert Insights on Nonprofit Mergers & Acquisitions
The NonProfit Times discusses how partnerships, consolidations, mergers, and acquisitions have become strategic moves for nonprofits facing financial and operational challenges. The article notes that "mergers can be a tool to increase capacity, expand services, and enhance sustainability."
These strategic consolidations allow nonprofit organizations to leverage combined resources and expertise to better serve their communities.
Forbes adds that successful mergers require careful planning and alignment of mission and values. According to the article, "Nonprofits must ensure that their missions align closely and that there is a clear understanding of how the merger will enhance their impact." This alignment is crucial for maintaining the integrity and effectiveness of the merged entity.
Key Considerations for Navigating Nonprofit Mergers
When considering a merger, nonprofits should take several factors into account. Eide Bailly, a regional CPA and business advisory firm, outlines important considerations:
Due Diligence: Conduct thorough financial research of the potential partner organization.
Compatibility: Ensure strong relationships and compatibility with the other organization’s team, board members, and key stakeholders.
Shared Organizational Cultures and Values: Evaluate if the merging organizations share similar cultures and values.
Resource Evaluation: Assess the combined resources and how they can be optimized.
Leadership and Management: Review the leadership and management structures to ensure they can effectively guide the merged organization.
Experienced Advisors: Utilize experienced advisors to navigate the complexities of the merger process including implications on tax exemption/tax-exempt status.
Conclusion: Research is Key to Successful Nonprofit Mergers
There are numerous reasons why nonprofit organizations choose to merge, from financial stability and increased impact to strategic realignment and leadership transitions. If your organization is contemplating a merger, ensure thorough research and careful consideration of all relevant factors to maximize the benefits and ensure a successful outcome.