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Buy to Build: Nonprofit M&A as an Impact Enhancer

Mergers don’t have to be distress-oriented survival deals

2021 proved to be a bumper year for global mergers and acquisitions (M&A), which according to Refinitiv Data, surpassed $5.8 trillion last year. The drivers, of course, differ by each deal. But one can assume, in the cases of for-profit businesses, the acquisitions are mostly strategic in nature and either create a better competitive alternative or help navigate obstacles standing in the way of future growth.

Similarly, many charitable organizations face their own competitive pressures, particularly as the number of nonprofits continues to grow and as donors increasingly demand accountability. Yet, within philanthropic circles, M&A is still generally considered an option of last resort. Mergers aren’t necessarily a foreign concept among nonprofits; there are even organizations, such as SeaChange Capital, the Bridgespan Group, and others, who can play an intermediary role to help NGOs and philanthropic organizations scale their impact (not unlike a traditional investment bank or business broker). However, the financial incentives that motivate corporate sellers don’t exist. In fact, nonprofit executives are well aware their jobs may be made redundant. Funders, similarly, often perceive that their board seats and influence could be put in jeopardy. These fears, which aren’t unfounded, help explain why the default among philanthropies of a certain size is to view dealmaking as a tool for survival rather than growth.

As a result, M&A among nonprofits, when it does occur, tends to be counter-cyclical. It rises as the economy decelerates and fundraising dries up, and slows during periods of sustained economic growth, when funding may seem more accessible. It’s during these “periods of plenty,” when it becomes easy to overlook M&A, and instead focus on fundraising initiatives or deploying newfound resources. But it’s also during these upcycles that M&A can be most effective—not as a lifeline—but as a strategic tool to engender a more pronounced and sustainable impact.

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