Excess Benefit Transactions

Is a Merger in Your Non-Profit’s Post-Pandemic Plans?

As the COVID-19 pandemic finally seems to be fading in the United States, your non-profit organization may be making plans for its post-pandemic future. Is a merger with another non-profit part of these plans?

A merger can provide your organization with greater stability and resilience so that you can survive any new challenges that comes your way. But a merger is not always the best solution if, for example, you are looking for a financial rescue. Here is a summary of good — and bad — reasons to join forces.

Solid Motivations
Successful mergers are based on a foundation of solid motivations. You might decide to merge to establish the stability that will make it easier to pursue your mission. Such a union could lead to a stronger organization that is better able to survive difficult times. You also might want to merge to reduce the competition for funding, which could intensify as cash-strapped state governments cut back on their non-profit grants and contracts in the wake of the pandemic.

A merger can help non-profits achieve economies of scale that will make the merged organization more efficient, too. This might come, for example, from combining infrastructures — everything from staffing and board leadership to administration, information systems, human resources, and accounting. A merger also could give you access to a wider network, as well as more perspectives and experiences to base decisions on. In addition, it might enable you to provide more programming or add physical locations.

Unexpected Expenses
For all of the worthwhile reasons to consider a merger, it is important to remember that mergers do sometimes fail. One common reason is that the merger itself, as well as the new organization, can cost much more than expected. In the short term, for example, you will need to finance transactional and integration costs.

Arrangements intended to rescue a failing organization are another red flag. In this scenario, you usually see a larger, more stable non-profit swoop in to save a smaller counterpart that, despite its weaknesses, has something to offer. However, a merger is not likely to solve problems such as poor leadership or business practices. The better approach in such a situation is for the larger non-profit to acquire assets, or viable pieces, of the smaller organization.

Potential Partners
If you do decide to proceed with a merger, be careful about choosing a partner. It should share a similar mission, values, and work culture. That does not mean you have to offer duplicative services, but they should at least complement each other.

Contact us for more information about the benefits and risks of a merger. We can review your financial situation and help determine whether your plans make sense or whether there are better alternatives.

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