Strategic planning is a crucial component of effective management and governance of not-for-profit organizations. But doing so effectively is difficult, even in the best of operating environments. Senior management and governing boards today are faced with many challenges, including reductions in grant funding, increasing demands on programs, a sluggish economy, and the impending retirement of key personnel.
As a result of these and other challenges, the not-for-profit sector has seen a significant increase in merger activity; and many boards are incorporating potential mergers and acquisitions in their long-term strategic planning. Reasons to consider merger and acquisition (M&A) include:
• Increasing competitive pressure from similar organizations;
• A larger organization may be more attractive to funders;
• Filling the gap left by a retiring executive director;
• Improving operating efficiency through economies of scale;
• Increasing outreach.
The not-for-profit environment is highly fragmented and far more competitive than people realize, and faces many challenges going forward. One of its most significant challenges is the predicted retirement of 75% of not-for-profit executives over the next five years. For these reasons, among others, we believe that there is considerable potential for M&A to create value in the not-for-profit sector; however, it may not always be the best option. An effective merger or acquisition between two not-for-profit organizations can be complicated and must be carefully managed. While a well-executed combination can result in many benefits, there can be many pitfalls and obstacles that must be considered. Examples include:
• One of the organizations has significant outstanding debt;
• There are outstanding lawsuits against one of the organizations;
• There are major cultural differences between the organizations;
• Employee compensation and fringe benefit packages differ significantly;
• Key funders and contributors are opposed to the merger;
• One or both organizations lose their identity.
An organization’s decision to pursue M&A activity should not be taken lightly. A merger or acquisition should be viewed as a tool for mission enhancement, and needs to be well thought out to be successful. The professionals at Schneider Downs have extensive experience in this area. We assist with the due diligence process , educate governing boards prior to undertaking M&A activity, analyze operational and tax ramifications of business combinations, and assist with developing management strategies for the newly combined entity.
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