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Mergers & Acquisitions for NFPs

The thought behind merging two companies together is to increase the value of each—the idea that two are better than one.
Today's not-for-profit sector is experiencing an unprecedented change which is moving many NFP organizations to consider merger and acquisition activity.

Several key tenets driving this are:
  • Many senior level executives who founded their organization, or have been involved with it for decades, are finding themselves nearing retirement. This has led to a significant increase in unfilled executive level positions.
  • Ongoing budgetary constraints on government funded NFP's are experiencing the additional burden of providing more services with less available funding.
  • Extreme complexity regarding reimbursement methodologies and underlying governmental compliance regulations
  • The sheer increase in the number of NFP organizations over recent years, has made it more difficult to attract qualified board members
  • Identification of risk factors that the organization is unable to manage, mitigate or eliminate
  • Lack of financial sustainability because of decreases in programmatic funding and third-party contributions
     
A board of directors and/or executive management that is in tune with these challenges positions themselves to be proactive in identifying potential solutions. Many NFPs will begin the process with the concept of collaboration, before considering a potential merger. Collaborative efforts among similar NFPs can be very beneficial to both parties. An example of this in recent practice is the sharing of staff among multiple agencies, where a full-time position at the various organizations is not necessary. The sharing of a staff provides the proper technical support and function, while reducing the cost of a full-time salary. We have seen this work in the areas of IT, maintenance support and compliance. This has been extremely successful because of administrative revenue reductions.

Many entities have experienced a shifting of risks over the years. Certainly the risk of “quality care” is ever-present. However, risk on non-compliance with billing documentation, substantiation of service delivery, insufficient or no robust risk assessment process, ineffective board oversight, inability to attract new programs or new funding streams, poor operating results, etc. continues to challenge organizations similar to yours.

For these reasons, we are seeing organizations talking to each other about merging their organizations, or, at a minimum “becoming part of the family of organizations”. Creating a structure of similar values, mission and vision allow these organizations to move ahead in their risk assessment process, address the risk and continue to survive financially because of the efficiencies gained from this type of relationship.

For more information about this topic, contact David M. Rottkamp, Not-for-Profit Practice Leader of Grassi & Co., at drottkamp@grassicpas.com.
 

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