Mergers & Alliances: Supporting Strategic Restructuring among Human Services Organizations
October 2009
Facing increased need with decreased resources, human services organizations can benefit from nonprofit-initiated, donor-supported mergers and alliances that further missions and contain costs.
The Strategy
As donors think about ways to achieve philanthropic goals during difficult economic times, one strategy to consider is supporting mergers and alliances among nonprofits. Many nonprofits are contemplating new ways to partner with aligned organizations. In a recent survey, 42 percent of nonprofit respondents indicated interest in collaborating with another nonprofit on programming, 13 percent were interested in collaborating to reduce administrative expenses, and five percent were interested in a merger.1
Such alliances and restructurings are time-intensive, challenging, and require significant up-front financial support. By providing this support, donors can further their own strategic grant-making goals while helping to produce stronger programs and organizations.
Mergers and alliances should not be embarked on as last-ditch efforts to keep failing organizations alive, as the stress and financial instability of one organization does not melt away when it is aligned with another. Rather, collaboration and restructuring are most successful when partnering furthers both parties’ missions. They are also most likely to succeed when they are nonprofit-initiated and supported, but not mandated, by philanthropists.
The Problem
The recent economic downturn struck the human services sector hard, with nonprofits facing an increase in demand for their services and a simultaneous decrease in their funding. In 2008, the sector’s funding through charitable donations was down from the previous year by 12.7 percent.2 In addition, human services organizations are particularly vulnerable to cuts in government funding, and so are being hit again as many states slash their budgets.
As states re-examine their methods of paying for crucial human services activities, such as housing for the homeless, mental health services and care for children with special needs, many are beginning to move to a “network” or “lead-agency” model. In these instances, states are cutting the number of human services providers with which they contract and are asking the nonprofits to organize themselves into networks.
This shifting landscape creates opportunities for nonprofit collaboration, from simple network agreements to consolidation of back-office support to organizational mergers. In addition, some human service organizations are looking at restructuring and collaboration as a way to expand the scope and scale of their services.
The Opportunity
- Provide direct financial support for restructuring among human services organizations. Support nonprofit-initiated restructuring by funding the work that goes into it, from feasibility studies and legal fees to creating financial incentives for the new organization or collaboration. Some donors or groups of donors have even created separate funds to support nonprofit restructuring.3
- Use convening power to facilitate meetings on restructuring. Funders can bring grantees together to educate them on the costs and benefits of mergers and alliances. Such meetings signal to grantees that donors are open to supporting efforts to restructure.
- Support the new alliance or nonprofit even after the restructuring is completed.A larger entity with an eye toward growth will need continuing financial support. Donors sometimes plan to give a restructured organization the equivalent of what they gave to its precursor. Donors should be aware that they will not be getting “two organizations for the price of one” and should consider increasing their annual support for new entities or partnerships.
Additional Resources
- The Lodestar Foundation’s Nonprofit Collaboration Database includes a detailed listing of nonprofit collaborations, ranging from organizations sharing advocacy efforts to actual mergers. It gives information on the challenges the collaborators faced, how they were overcome and metrics for measuring outcomes.
1. Nonprofit Finance Fund, “Nonprofit Finance Fund: America’s Nonprofits in Danger”
2. The Center on Philanthropy at Indiana University, Giving USA 2009: The Annual Report on Philanthropy for the Year 2008, (Giving USA Foundation, 2009), 119.
3. Funds that support nonprofit restructuring have been created by the San Francisco Foundation, the Columbus Foundation and the Lodestar Foundation, among others.
