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By Paul Hartog, CPA, HoganTaylor Assurance Partner

Mergers and acquisitions are something that many for-profit companies do to grow profits and achieve economies of scale.  Nonprofit boards may also pursue a merger or acquisition to help improve the quality of existing services (e.g. enhance programs, training and supervision); improve the efficiency of existing services (e.g. use assets more effectively and reduce overhead); increase funding (e.g. gain access to better fundraising capabilities); develop new skills (e.g. acquire new program expertise and leadership capabilities); and potentially enter new geographies.

American idealism generates new ideas and businesses perhaps more than any other country.  We also start the most nonprofits which can lead to overlapping services and certain operating inefficiencies. Nonprofits have virtually no true market forces to keep them in check other than their ability to fundraise.  As a result, a severe recession can impact an organization’s ability to maintain operations.

When should an organization consider a merger or acquisition?  Some mergers and acquisitions have occurred due to careful business planning and discussions over time with the entity being merged or acquired.  Others begin consideration of these options due to loss of funding or market forces.  Ideally, consideration of a merger or acquisition should occur prior to any crisis.  Mergers and acquisitions used by strong, rather than weak, organizations can create important structural changes that contribute to a stronger combined organization.

Nonprofits may want to consider forming a committee of the board of directors, along with key staff to identify potential merger or acquisition targets.  The committee can oversee the due diligence process and reach out to community leaders, funding organizations, and other stakeholders to allow for conversations regarding what overlapping services other organizations may be providing, what competencies can be shared, and how services to the community could be improved.

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