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June 24, 2020

COVID-19 Impact on Nonprofits: 3 Considerations for a Merger, Acquisition, or Collaboration as a Future Strategy

Ellen Winiarczyk is the academic director and faculty for the Nonprofit Leadership graduate program at University College at the University of Denver.

A Spring 2020 Chronicle of Philanthropy survey of 172 nonprofit CEOs, 84% stated that the COVID-19 pandemic had a moderate or significant impact on their organization’s fundraising. Seventy-seven percent of nonprofit CEOs also stated that fees from services, ticket sales and other small activities saw a decline in these fee raising activities. And we haven’t even experienced the trickle down yet of less discretionary spending (e.g., giving, memberships, etc.) which is coming in the next year. What does that mean for the nonprofit sector?

This fiscal year, and at least 2-3 years into the future, are going to be precarious times for small and medium sized nonprofits, and those that are more highly leveraged (e.g., high liabilities, future expenses, etc.). The big nonprofits – museums, zoos, botanic gardens – will have challenges too, but have more of a cushion. Low cash flow or the number of days of cash on hand, as well as diminished grants and donor prospects will drive nonprofit CEOs and Boards of Directors to consider cutting costs, and services, in other ways.

Enter mergers, acquisitions and other creative collaborations and partnerships. Tactics like merging ‘back office’ functions or partnering on service delivery may lead to interesting organizational combinations. Even outright organizational mergers of like-type nonprofits (e.g., health-related nonprofits, youth services, environmental and education/advocacy). There is no magic bullet to what will work in merging or partnering for organizations.

In our Spring 2020 webinar that the Nonprofit Leadership program at University College University of Denver hosted to discuss organizational mergers, our panelists noted that nonprofit leaders and board members should consider these three things when entertaining possible partnerships:

1. Be clear about your organization’s mission and vision of the future your organization brings to addressing your community’s need. Will the partnership cause mission creep?

2. Write a business case that clearly identifies how the organizational partnership addresses the mission of the new or combined organizations

3. Be careful of your own preconceived notions! Crafting these kinds of organizational relationships is like dating and then marriage. There can be many relationship twists and turns. So, having an open mind to different ways that the partnership could work is important to achieving success.

2020 and 2021 will be trying years for the nonprofit sector. To ensure organizational success and stability, partnerships and collaborations may be necessary to carry on the important work of your nonprofit organization.

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