Collaboration and Merger Options for Nonprofits
The number of nonprofits in the United States continues to grow at a more rapid pace than
business. While this may mean that even more needs are being met, it also means that the
nonprofit world is becoming more crowded, and access to funding is becoming even more
competitive. Nonprofits tend to be collaborative in nature, but the new funding climate and
organizations’ desires to better serve their constituents is leading to an unprecedented number
of formal collaborations. This Topic of the Month will review different types of collaboration, from
informal to formal and will also discuss times when a nonprofit might consider merging with
another.
The Environment
In the past decade, the number of nonprofits has increased by 23.6%, far surpassing the growth
of corporations or government entities1. On average, twenty-two percent of funds that nonprofits
receive come through charitable donations from individuals, corporations and foundations, but
this giving fell by 10% between 2005-2011 when adjusted for inflation2. Simply stated, there are
more nonprofits and fewer funds.
Funders have historically encouraged collaboration among nonprofits. Increasingly, however,
funders – especially foundations – want nonprofits to focus on “economizing and streamlining
service delivery and preventing struggles for available funds”3 Because of this and the current
funding environment, nonprofits are increasingly willing to consider collaboration, sharing of
back-office functions, or even mergers.
Forms of Collaboration
At its core, collaboration is a simple sharing of resources and can include making joint
purchases of products (such as a food for a program or office supplies), sharing training
expenses for staff, or joining together to support a common cause.
Options for collaboration are expanding and can be a key way for your organization to save
money, increase efficiencies, and gain additional visibility. It can be helpful to think of
collaborations as being on a spectrum, with informal partnerships that are not legally binding
1
Roeger, K.L., Blackwood, A.S. & Pettijohn, S.L. (2012). The Nonprofit Almanac. [e-book]. Retrieved from
http://nccsdataweb.urban.org/NCCS/extracts/nonprofitalmanacflyerpdf.pdf
2
Has America’s Charitable Giving Climbed Out of its Great Recession-fueled Trough? (2012, June 19). School of Philanthropy
News. Retrieved from http://www.philanthropy.iupui.edu/news/article/has-americas-charitable-giving-climbed-out-of-its-greatrecession-fueled-trough
3
Toepler, S., Seitchek, C., & Cameron, T. (2004). Small Organization Mergers in Arts and Humanities. Nonprofit Management &
Leadership, 15(1), 95-115.
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and do not require significant organizational integration on one end and mergers, which require
the legal consolidation and complete integration of organization on the other end.
Informal
collaboration
Joint
Program
Management
Services
Organization
Joint Venture
Merge
Joint programming and administrative consolidation are the next step on the continuum from an
informal collaboration to legally binding agreement. These initiatives will require more time and
a broader integration of programs and services between two or more organizations. In both of
these instances, organizations will work together for a common purpose. For example, a child
care facility may partner with a local museum to provide an arts-based curriculum. On the
administrative side, several nonprofits may decide to share one accountant or HR director and
therefore save money by not having to fully staff their program.
Next on the spectrum are collaborations that require legal agreements and the creation of a new
entity. If an administrative consolidation is working well, organizations may want to consider
establishing a Management Service Organization (MSO), which is a separate entity that is
designed exclusively to provide back-office or administrative functions to a group of nonprofits.
While there is work involved in establishing the MSO, it can maximize efficiencies and help
organizations save money by sharing a common administrative support platform. Along the
same lines, a strategic alliance is a more formal agreement to unite programs and decrease
costs while still allowing the organizations to maintain their organizational independence.
Near the end of the spectrum, a Joint Venture is completed when two or more organizations
form a separate legal entity to pursue a new initiative. An example would be two schools coming
together to start a third school (a new nonprofit) in a different area. Finally, a merger is the end
of the spectrum and is the complete consolidation of two organizations.
Collaborations take many forms and are often a good way for your organization to save funds
by operating more efficiently. If your organization is considering merging with another entity, a
first step can be to collaborate at a lesser level to determine if a legal consolidation is going to
be most effective.
Merging
Mergers are common in the for-profit world and are often completed so that a company can
quickly increase its scope or scale of services. Mergers are increasing in the nonprofit/NGO
sector, and more organizations are considering the possibility. A merger in the nonprofit world is
defined as the fusing of boards, management, and legal entities to form a single organization.4
In general, a merger of nonprofit organizations is either an absorption, in which one organization
dissolves and is assimilated within another, or an equal status merger, in which two or more
entities dissolve to form a new structure that integrates the full programs of the organizations.
4
La Piana, D. (2010). Merging Wisely. Stanford Social Innovation Review, 8(2), 28-33.
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Nonprofits typically consider a merger when they have reached a “tipping point” or critical event.
This may include a significant decrease in funding, the loss of a programming facility, or even a
change in demographics of the clientele. Mergers are also encouraged by some funders, who
believe that two or more organizations combining forces will be able to operate more efficiently
and increase fundraising power. However, recent studies have indicated that while mergers
typically do result in the provision of better or expanded service, they do not necessarily result in
increased efficiencies, and fundraising gains are only seen after short-term losses. As a result,
mergers should not be a response to crisis but rather part of a strategic plan. Key reasons to
consider a merger include:
1. Growth strategy – by merging, an organization may be able to serve even more
constituents by entering new markets or expanding its market share. In addition, with
access to different resources, an organization may also be able to diversify program
offerings.
2. Consolidation – if you are in a service market where there are many small players, it
may make sense to consider merging with one or more organizations that will allow you
to maximize efficiencies and broaden your market presence.
3. Compatibility of mission – can you better fulfill your mission if you merge with another
organization? Does another organization provide complimentary services or have
permanent facilities that would help your organization achieve its mission? Successful
mergers occur most frequently when the merging organization’s missions are compatible
and a shared vision for the future can be created.
In short, think strategically about whether or not a merger will help you accomplish your mission
in the long-term, not whether it will help you out of a current financial crisis.
Challenges of Collaboration
While there are many benefits of collaboration, it is important to note that there will also be
challenges. First and foremost, any type of collaboration means that the collaborating
organization is losing some control. If an organization is sharing space, they will no longer have
full control over its use. If an agency is sharing staff, they may need to adapt to the other
organization’s culture and norms as they pertain to staff performance. The ultimate loss of
control occurs in a merger, when one organization essentially takes over another. This loss of
control and identity at any level can be difficult for leadership, staff, volunteers and donors.
One of the best ways to overcome the challenges of collaboration is to communicate clearly and
consistently about the plans for collaboration, the expectations, and the anticipated outcomes.
By sharing this vision with all stakeholders, including staff, board members, donors and program
participants, the organization can prepare for change and can pursue a meaningful collaboration
that is supported by its constituents.
Conclusion
Collaboration in any form can be a challenge. However, when collaboration is done with the
vision of better meeting the needs of clients, program participants and communities, the benefits
often outweigh the challenges. When done successfully, collaboration can improve efficiencies,
save costs, and strengthen programs.
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Additional Resources
The Foundation Center hosts an excellent library of articles, sample agreements and other
resources that pertain to various forms of collaboration:
http://foundationcenter.org/gainknowledge/collaboration/
The Center for Nonprofit Excellence also lists several resources, including templates for
collaborative agreements: http://www.thecne.org/tools-collaboration
Kimberly Reeve is a Managing Director and Sterling Clay is an Associate in the New York
office of Cathedral Consulting Group, LLC.
For more information, please visit Cathedral Consulting Group LLC online at
www.cathedralconsulting.com or contact us at info@cathedralconsulting.com.
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