A recently-published study by the high-profile Bridgespan Group has been getting a great deal of attention lately. The report, “Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times” promotes the idea that nonprofits – and their funders - should be more proactive in considering M&A as a strategy for growth, instead of considering it as a tool to be deployed only when revenues are shrinking and organizational survival is threatened.
The study, although limited in scope, does provide some interesting information about the rate of nonprofit mergers, which turns out to be comparable to the rate in the for-profit sector, except for very large nonprofits, where it’s much lower.
There’s More to the Sector than Market Share
However, the report’s orientation and language is entirely – and unapologetically – corporate. Its basic thesis is that “Now is the time for the strongest, most effective organizations to use [M&A] as a strategic tool to further their impact.” The authors speak of market share, competitive pressure, branding, achieving “critical mass to grow more competitively”, etc. To be sure, those factors are important considerations for many of us, but they are by no means the only nonprofit decision drivers, as a reader of the report might be led to believe.
The authors describe mergers as having “high potential for social impact” but say nothing about what that impact might be or how such potential would be achieved. Their assumption is that larger, more “efficient” nonprofits will have more of an effect on social problems than smaller, less “efficient” ones, but that’s a highly debatable proposition and they cite no data to support it. For a contrary view, check out Jan Masaoka’s recent contribution in Blue Avocado.
Is the Community Still Being Served?
There may well be efficiencies and other benefits to be realized with some mergers, but when a merger is really an acquisition of a distressed organization by a stronger one, the question of community impact must be addressed. If a merger would benefit one group’s mission and core constituency but not the other’s, is it really in the best interest of the community, all things considered? The answer may be "yes" in some cases, perhaps even in most, but an affirmative response cannot be presumed: the question must be asked - and answered - if the ultimate goal of nonprofit work is stronger communities.
The nonprofit sector is not just about economies of scale or cost per unit of service. That equation may work in the for-profit world but measures of success and impact in our sector are much more complex than mere metrics, a fact the Bridgespan authors appear not to have considered.
There Are Other Answers
It may well be true, as one of the study’s informants says, that “the economic downturn … is going to push M&A in a big way because small agencies dependent on just a few funding sources are going to see that funding shrink, and it will not leave them with the margins to survive.” In fact, that’s already beginning to happen. But M&A isn’t the only, or necessarily the right, answer to these stresses. In many cases, less costly and complex alliances such as programmatic collaboration, sharing of staff, space or back-office services, among other possibilities, may be more appropriate and are far less disruptive to both organizations and constituents.
One option for viable but temporarily distressed nonprofits, described in a recent ED Forum, is transition to the “safe haven” of fiscal sponsorship. This option preserves the mission of the group while providing high-level administrative support and the time and space to regroup. Far from being a hostile takeover or a predatory acquisition that benefits one party only, a fiscal sponsorship transition, done properly, is a creative alternative whose objective is to enable the development and nurturing of grassroots solutions to community problems. Contact us at TSNE if you’d like to know more about this idea.
So my message to nonprofits and funders alike is: Before you jump on the “Bridgespan M&A Express”, I hope you will think carefully about whether promoting a more proactive merger and acquisition strategy is really in the best interests of our communities and constituents.
In the ED Forum, TSNE’s Executive Director Jonathan Spack reflects on issues facing nonprofit organizations in and around the Boston area and across the nation. Follow Jonathan on Twitter @JonathanSpack.