Buying a Non-Profit Organization: A review of the Art of the Deal.
Now that I have built the Financial Policy Council to a critical mass of board members and supporters I come to the point of asking sometimes myself: Should I continue building our non-profit organically or go buy another non-profit, aggressively scaling it and growing it by leaps and bounds? Most importantly, is it legal to do so, how do you go about it?
So I went digging further in the subject matter and this is what I found.
It looks like nonprofit mergers and acquisitions have become much more common place in the last five or so years, due to the economy; that said, the how to’s still aren’t that common place for the average nonprofit.
Generally speaking, nonprofit purchasing of other nonprofits falls under the classification of mergers and acquisitions (very similar to the business world). Mergers and Acquisitions (M&A) can be used by failing organizations to improve their financial stability or by healthy organizations to increase their effectiveness, reach, resources, etc. BridgeSpan has a nice series of articles on nonprofit M&As at http://www.bridgespan.org/Nonpro
I’ve seen a number of nonprofits go through mergers or do partial acquisitions—selling off profitable services as a brief delay before closing. For example, www.opportunityknock.org was purchased by the Georgia Center for Nonprofits from the former ‘The Management Center (TMC)’ a San Francisco based nonprofit, as part of their closing proceedings. Other assets, like the Wage & Benefit Survey, etc. were also sold off.
Obviously, the purchasing nonprofit gets the reputation of these well established services, prior research, best practices, etc…. I’m uncertain what TMC received, but I’d assume compensation to cover payroll and other expenses until they officially closed doors.
I’m not aware of any websites where a nonprofit would announce that they want to be purchased. To my knowledge, that has generally been accomplished by semi-discrete word of mouth, or announcements to partners and collaborators, potentially maybe mentioning it at state, regional, or national conferences.
What I do know about mergers and acquisitions is that they typically start with the board of directors or the executive director/CEO of the organization that is looking (from either side). If your organization is in trouble, this may mean assessing other organizations who work in the same field and determining if a merge, selling of assets, etc may prove fruitful. Obviously, there needs to be benefit for the organization you might approach. Them saving you, isn’t really a win-win situation. Them entering into a new market, access to funders that they priory couldn’t reach, access to specific assets, etc., may be things to evaluate and list as potential benefits.
The opposite is true if your organization is the one looking to acquire—what do you exactly want? New expertise, regional clout, access to best practices, skilled staff, intellectual property, or just a merging of likeminded organization to reduce competition for grants and improve funding opportunities?
I’d assume a lawyer would be involved at some point, but besides from IRS paperwork, I think the only official change is your preference of agreement—contract, memoranda of understanding, etc. Otherwise, I think its dissolution paperwork with the IRS if one organization will be closed. If it’s a merger, then name change forms, updated financials, deciding which board to keep, etc….
The larger the organizations, the more work it is. For smaller organizations, it can probably be as easy as, Mid-size Org A who was the fiscal sponsor of pretty small organization B, has now incorporated B as a project of A. Your Form 990 and associated Schedules would reflect, and org B would file a notice of dissolution.
So as a general rule nonprofit organizations can’t be bought and sold as such, although their assets and liabilities can. Having said that, nonprofits can be taken over. To do this, one would need to take control of the board of the target organization, or otherwise convince the board to vote to merge. A nonprofit can also be dissolved as provided in its bylaws, and its assets/liabilities assumed by another organization.
At the end of the day, I would ask what exactly do you want to achieve by “purchasing” nonprofit.
If you want to manage a nonprofit, without laying the ground work, then I would suggest to either contact an organizations which aligns with your belief system (education, social welfare, humanitarian nonprofit) and suggest you start a local chapter for them, or identify a nonprofit a take control over their operations by gaining the support of the board.
Clearly lots of ways to go about it.
Please share your thoughts.
