Joining Forces: The Growth of Nonprofit M&A
Just as there has been an explosion of high-profile mergers and acquisitions in the for-profit world, more and more nonprofits are joining forces and blending identities in order to expand their programming and mission.
A recently proposed merger between Peninsula Community Foundation and Community Foundation Silicon Valley is emblematic of a soaring interest in collaboration and the consolidation of programming and activities between nonprofit organizations. As federal funding for nonprofits decreases and competition for grants intensifies, more organizations are considering merging as a way to cut costs and increase efficiency.
Many nonprofits are looking to mergers as a way to reduce fierce competition for finite funds while creating larger organizations with greater visibility among potential donors. They can also lead to better services provided by nonprofit organizations. For instance, a merger between organizations sharing similar missions permits dollars that supported administrative expenses to be channeled directly to programming. Most nonprofit mergers are strategic in nature, permitting expanded programming, grant making, and greater benefits to the communities served by the organizations.
A New Community Foundation?
“The goal of a merger is to create a new organization, to create a new organizational culture,” explains Bob Harrington, senior manager at La Piana Associates, Inc., a management consulting firm in San Francisco that for nearly a decade has assisted nonprofits in addressing strategic issues surrounding mergers. Over the past two years, Harrington has seen a 50 percent increase in the number of inquiries he’s received from nonprofits considering a merger.
In the case of the proposed merger between Peninsula Community Foundation and Community Foundation Silicon Valley, the possible integration emerged from a desire for increased collaboration between the organizations, according to a joint statement. This step, recommended by strategic consulting firm McKinsey & Company, is currently under discussion between the two boards of directors.
A merger would result in the creation of the third-largest community foundation in the country, extending its visibility among prospective donors. The new community foundation could additionally benefit from economies of scale which, when coupled with the shared expertise of the two distinct organizations, could expand services to donors and programming to communities.
New Programming Opportunities
A merger that took place in August 2003 between the Women’s Foundation San Francisco and the Women’s Foundation Los Angeles was eased by the creation of a transition board that “permitted the joining of the two organizations rather than the gobbling of the one by the other,” according to Maya Thornell-Sandifor, senior communications officer of the resultant Women’s Foundation of California.
These groups enjoyed a relationship long before the merger. The San Francisco organization had helped the Los Angeles organization establish its charter and develop both programming and grants. The collaboration facilitated the eventual merger, a not uncommon trend in which partnerships can lead to full integration.
“We were bringing opposite skills in our handling of programming and our familiarity with different kinds of audiences,” Thornell-Sandifor says. With the conjoining of the organizations and the blending of these skills, the new Women’s Foundation of California recognized an opportunity to expand its programming and its goals. For the first time, the organization was able to pursue policies and programming that were statewide rather than merely regional.
As a result of the merger, the nonprofit organization now makes recommendations on propositions and state government policy. As a unified entity, it is able to command the attention of politicians and policymakers more successfully than as separate groups.
“The new organization that came out of the merger improved programming and let us become a political body,” says Thornell-Sandifor. Today, the Women’s Foundation of California not only can offer better programming for the diverse populations that it serves but also can advocate on their behalf.
Shared Resources and Joint Ventures
Mergers permit one means of combining resources as well as expanding programming and extending the mission of a nonprofit organization. But it is not the only way that separate organizations can pool resources. Amelia Kohm, a researcher at the Chapin Hall Center for Children at the University of Chicago, undertook a comparative study of nonprofit mergers in three separate American cities. She observes that administrative consolidation—in which separate organizations share back-office functions such as human resources or payroll—is increasingly common. So, too, are joint ventures in which a separate legal entity overseen by the boards of two or more nonprofit organizations is founded. Yet she indicates that none of these solutions affords the full range of benefits that can be secured by merging nonprofit organizations.
“In the 1990s, nonprofits were increasing at a remarkably fast rate and funding sources simply were not capable of sustaining this growth rate,” Kohm observes. Mergers between nonprofit organizations emerged as an increasingly common response to the intense competition for adequate funding.
“The new entities formed out of mergers reported greater stability,” she says of that period. Other benefits included expanded expertise and new opportunities for advancement within an organization. Her research also showed that there were fewer layoffs after a merger than were anticipated.
Harrington concurs with these findings. “In the last couple of years, mergers between nonprofits are no longer such a foreign concept,” he says. “While they were once driven largely by economic concerns, now they take place because they are familiar and perceived as an effective strategy permitting greater efficiency.”
As long as they are able to increase programming and expand their missions, nonprofits will likely continue to find ways to pool resources and share strengths.
For more information, visit:
• Community Foundation Silicon Valley: http://www.cfsv.org/
• Peninsula Community Foundation: http://www.pcf.org/
• La Piana Associates, Inc.: http://www.lapiana.org/
• Women’s Foundation of California: http://www.womensfoundca.org
• Chapin Hall Center for Children at the University of Chicago: http://www.chapinhall.org/
Thomas Asher is a freelance writer based in San Francisco, California.
Copyright 2006 Community Foundations of America
Used with Permission