When and Why Should Nonprofits Merge?

One of the toughest questions to answer for nonprofits is whether two nonprofits should merge.

To start, it’s worth acknowledging that every situation is different. During the COVID-19 pandemic, we saw many nonprofit organizations close their doors. In some cases, mergers were a way to save at least part of the work and programs of these organizations.

In other cases, nonprofits seek to merge not out of necessity but out of opportunity. Leaders see an opportunity to minimize duplication in the field and expand their programs’ reach.

Regardless of the reason, if you’re an executive director or board member of a nonprofit considering a merger, this article is for you. We’ll cover the pros and cons of mergers, as well as key considerations for your decision-making.

Is More Nonprofits a Bad Thing?

For the past decade, there’s been a popular attitude in the nonprofit space to frown upon the creation of “unnecessary” or “duplicative” nonprofits. We have over 1.4 million registered nonprofits in the US and it’s true that many are duplicative and unsustainable. But that doesn’t mean these nonprofits should shut down, nor does it mean they should not have been created in the first place. 

When someone has it in their mind that they want to start a nonprofit, they are driven. It is VERY entrepreneurial, and there is nothing wrong with that impulse.

Many of these driven people end up starting nonprofits without first checking to see if anyone else is doing exactly the same thing. And these same people are also not checking to see if existing organizations doing similar work are willing to collaborate. In these cases, we need to help leaders be realistic about how successful the new organization’s fundraising will be if their work is duplicative.

But duplication isn’t always bad in an of itself. The new organization may be fine being and staying small and/or serving a small niche. This organization may also be fine duplicating other programs if there’s a huge need. Plus, the new organization may even have a superior way of doing things. 

Should Nonprofit Mergers Address Program Redundancy?

Research shows that 5% of all nonprofits closed after the Great Recession, though I suspect it may be higher because this study only measured organizations over $50K in annual revenue. We’re still waiting to understand the full impact of the pandemic on nonprofits, early research suggested that a third of nonprofits were at financial risk.

Now, as the sector recalibrates, many organizations, leaders, and donors are considering the impact of mergers and closures. There are a few key questions at play:

• Do we already have too many nonprofit organizations?

• Are too many organizations doing the same thing, leading to redundancy?

• How are the “winners” and “losers” being determined when it comes to nonprofit sustainability?

• Will merging two nonprofits with similar missions and programs result in a stronger or weaker sector?

There’s plenty of space to argue all sides of these questions, but after working with hundreds of nonprofit leaders - and being one myself - I would like assert two things:

More organizations are better than fewer organizations. Period.

What we don’t want is more redundancy or duplication unless that redundancy is deliberate and valuable.

The word redundancy has a bad reputation because of waste or layoffs, but sometimes you deliberately want multiple organizations doing the same thing because they speak to different audiences or have different goals.

For example, young Black activists may be more likely to support Color of Change than perhaps NAACP which has a much longer history but is less digitally focused.

Some organizations work the “inside game” with legislators while other groups in the same movement, are “outside” agitators. One group makes strong public demands, the other quietly cuts a deal to advance policy.

I am deliberately oversimplifying here but hopefully, you get the point about redundancy. It is not always bad. Indeed, in practice, supposed redundancy can often be complementary.

The LGBTQ rights movement, for example, needs groups like PFLAG (warm and supportive parents offering hugs and support) and also ACT UP, who, in the 1980s, were disrupting the New York Stock Exchange and the Catholic Church to speed public attention to the AIDS pandemic.

Should groups like these merge, since they both were pushing for LGBTQ equality? Absolutely Not!

And Greenpeace and Sierra Club should also not merge. And so on…

How Nonprofit Mergers Affect Fundraising

Whenever I hear anyone suggest that two organizations merge, my antennae go up.

The merger idea usually comes from a place of fear by well-intentioned board members, rather than from the staff. Often the impetus for a merger is “fundraising sustainability.”

But here’s the truth. When you merge two organizations, the donations from funders generally do not get bigger. They stay the same or possibly shrink. If I was donating to both Sierra Club and Greenpeace before, and then they merged, I may think they have found cost savings, so those savings have been passed on to me. Instead of two donations of $50, I make one donation of $50.

Bam! Less overall money is now being donated. Counterintuitive? Yes. Is this what happens? Yes! 

You have essentially cut the number of board members, donors, and volunteers needed in half. The energy created by these organizations (and friendly competition) has been cut in half. 

So, we need to really think about mergers with the same caution as we think about creating a duplicative organization in the first place.

I am not a fan of mergers.

If one organization cannot survive, it may be a valuable exercise to just let it sunset and close. Organizations have life cycles and if the energy, marketing, or need isn’t there, we shouldn’t try to save something just for the sake of saving it.

I am a big fan of reducing duplication at the outset.

If you are thinking of starting a nonprofit, remember that there is a lot of paperwork (for some this is stressful and a hassle), and there is a lot of new infrastructure to create and expenditures to cover.

Organizations should first consider becoming a project of another nonprofit, either through fiscal sponsorship or being a new program offering of that larger nonprofit. Of course, there are tradeoffs. If you join as a smaller project of something bigger, you have less control, but you also have fewer administrative and compliance burdens.

Nonprofit Mergers Are Challenging and Fraught

If two organizations choose to merge, it is usually out of efficiency or because of giant stresses on the organizations. That means stakeholders are likely already in a heightened state of anxiety.

People don't like change. Two key worries commonly rise to the top. Staff members will worry about their jobs and careers. External stakeholders will worry the new organization won't feel like or be like it once was.

Merger planning should be a thoughtful and reasoned process. Both organizations need to be committed to preserving the best parts of their organizations. If a merger is happening because one organization may close its doors otherwise, and it just wants to preserve its best assets, people, and programs, then this is much easier to navigate, though still emotionally charged for some.

If Your Nonprofit Decides to Merge: Key Considerations

If your nonprofit has decided to pursue a merger, here are some key considerations you’ll want to keep in mind:

• Brand Recognition: Does one organization have a stronger brand or name recognition? This matters and some deference should be given to keeping the stronger brand. Your organization’s brand is like currency. It has worth and should not be tossed away easily. One example of a merger that resulted in a new name, and seems to have gone well, was the 2019 merger of GuideStar and Foundation Center into Candid. But normally the transition isn’t so smooth. I have seen two nonprofits merge and create a completely new name for the resulting organization. This is usually an emotional or turf issue hashed out in negotiations and rarely makes sense. Instead, I recommend that the name with the most power should have extra weight. The name with the most baggage should have less weight.

• Bylaws: You need to figure out the new bylaws. Will there be a compromise or can you simply adopt the one that is most useful?

• Board Membership: You will need to decide on the makeup of the new board of directors. Are you taking a percentage of board members from each organization or will everyone have to apply or meet the criteria of the new organization? You have a chance at this moment to build the board you have always wanted so I strongly encourage you to set high standards.

• Staff Concerns: The staff will likely be freaked out about whether their job will go away, what their new job or salary will be, and what they may be losing. Will they have a better or worse boss? Will they have more or less autonomy? How about the employment manual? A series of conversations should happen with the staff to smooth over the upcoming jolt to the system (a merger). If staff reductions will happen it’s best to be transparent.

• Joint Operating Agreement: Create a joint operating agreement or contract. Consider having the two organizations operate with each other for a while before moving to a full-on merger. Few organizations have this luxury if they are in crisis, but mergers under crisis are also not ideal conditions in the nonprofit sector.

• Assets: You will need to inventory what assets each organization possesses and how they will be handled. These assets include the name, the logo, the brand, the people, the offices, the hardware, the contracts, the coalitions, the reputation, the programs, the cash and bank accounts, etc.

Part of what is scary in a merger is uncertainty. Think about everyone’s interests. In a perfect world, you would keep doing what’s working, maintain and strengthen financial support, build an even stronger board and maintain community relationships. 

I’d love to hear your successes and horror stories with mergers. Send them to sean@mindthegapconsulting.org.