Some Funders Want Nonprofits to Merge

Last year, Margot Brandenburg, a senior program officer at the Ford Foundation, started casually floating the idea that some of her grantees should consider merging with other organizations. A few leaders of those nonprofits responded with indignation.

“Some people receive it as a criticism or as a suggestion that they’re somehow underperforming, and that is very much not the intention,” said Brandenburg, who manages a portfolio of grants for organizations that are working to promote impact investing.

Unlike in the for-profit world, where getting acquired is often a sought-after exit strategy that enriches company shareholders, there is a stigma around mergers for many nonprofits, she said.

Brandenburg’s interest in nonprofit mergers helped fuel the creation of the $1 million Collaboration Fund, a joint project with the MacArthur Foundation to help nonprofits defray the sometimes hefty costs associated with mergers. Consolidation can be a sensible choice, Brandenburg said, because the field of potential grantees has grown in the two decades since she became interested in impact investing, but the pool of available philanthropic funds has remained stagnant.

While the fund is limited to a small portion of the broader nonprofit field, Brandenburg and other advocates of mergers hope it and similar efforts can spur consolidation across the board. Fewer charities — there are more than 1.9 million nonprofits and foundations in the United States — would mean less competition for donations and grants. That competition has become more intense over the past year as many charities that depend on federal support have seen those grants cut or reduced.

Groups also merge for other reasons. Sometimes they see ways their work can complement one another. Or a CEO is considering retirement. The former leaders of the Patient Advocate Foundation and the PAN Foundation, which recently merged, say that gaining efficiencies on back-end processes like Medicare billing and streamlining fundraising costs were some of the key motivators for their merger.  

“It costs a lot of money to raise a dollar,” that can be directed to help patients, Alan Balch, former CEO of the Patient Advocate Foundation, said. “And if you’re not combining forces to do that, you’re competing with each other.”

Paying for Mergers and Managing Egos

While merging can save money in the long run, it can have high upfront costs. Last year Ford assisted the merger of the Capitals Coalition and the International Foundation for Valuing Impacts with a $400,000 grant, and that still didn’t pay for all of the trainers, finance pros, branding consultants, and lawyers involved. 

Beyond costs, perhaps the biggest complication, nonprofit experts say, is ego.

“Organizations are skeptical of one another,” said Jerald Jacobs, a lawyer and author of The Legal Guide to Nonprofit Mergers & Joint Ventures. “Boards are tribal, especially when they’re both in the same field.”

There isn’t current data on nonprofit merger activity, but Jacobs said business is on the uptick. And a study by the Center for Effective Philanthropy last year found that nearly half  of nonprofits worried they would have to close or merge because of fundraising difficulties.

But simply contemplating a merger is a lot different than putting one into action. Merger conversations can be especially difficult at the board level because a combined organization often means some of the trustees will lose their positions. Board members can be recalcitrant, Jacobs said, especially if they have risen through the ranks at state affiliates of the organization or have volunteered for it for a long time.

“If you’re asked to vote to approve a combination where half the board gets fired, that’s often a hard sell,” he said. “You need to massage the egos of those who have invested in the organization and its mission.”

Putting the Mission First

While a few of the nonprofit leaders Ford’s Brandenburg approached bristled at the idea of merging, others saw it differently.

“Among some grantees, there’s an element of relief to just open up the possibility that they don’t need to keep all the plates spinning on their own in what is objectively a very challenging funding environment,” she said.

The key to navigating a successful merger, according to nonprofit experts, is to maintain a focus on the missions of the two organizations, rather than the feelings of the top executives or the board.

That’s what Balch, former CEO of the Patient Advocate Foundation, and Kevin Hagan, former president of the PAN Foundation, say they have done. They merged under the name Patient Advocate Foundation, where Balch will be executive chairman of the board starting in July and Hagan will serve as CEO.

Patient advocacy nonprofits like theirs help people with co-pays and transportation to treatment, and push for policies to help patients. They often have to navigate a complex — and costly — payment compliance process, Balch said. 

The deal went smoothly, Hagan said, because both executive teams and boards focused on impact. The combined organization now covers patients with complications from more than 130 diseases and provides a higher level of individual case management services.

Hagan said he and Balch tried to set the tone early in the discussions that benefits to patients would drive the talks. 

“We’re doing this for the patients,” he said. “It’s not about either organization, it’s not about either CEO, and it’s not about either executive team.”

Nonnegotiables

Like the top executives in the patient advocacy merger, the leaders of two suicide prevention nonprofits whose merger is pending approval from the New York attorney general’s office say their pairing came because the two groups complemented each other, not because either organization’s financial house was on fire.

The American Foundation for Suicide Prevention was flush, with nearly $94 million in assets, including $64 million in publicly traded stock. Revenue for the JED Foundation has increased steadily over the past four years, thanks in part to two gifts from mega-philanthropist MacKenzie Scott totaling $55 million.  

Pending the approval of the merger, the organization will be known as the American Foundation for Suicide Prevention/The Jed Foundation for 18 months while new names are considered. Bob Gebbia, the AFSP’s president, had previously announced plans to retire in 2027, and John MacPhee, JED’s CEO, will lead the combined organization.

Both leaders had a clear view of what each organization could and could not do. The AFSP’s  73 chapter organizations were responsible for a large part of the organization’s $45 million in revenue in 2024. Gebbia says the 57,000 members of those chapters can “mobilize instantly” to push for policies related to suicide in every state capital in the country.

JED, on the other hand, receives a larger share of its revenue from big individual donors and institutional philanthropies. While the AFSP’s focus is on advocacy and research about suicide from childhood into old age, JED’s focus is on children and young adults. JED provides technical support for training programs at schools, community organizations, and municipalities.

Because neither nonprofit was in financial distress, the two groups could take their time. Last May Gebbia and MacPhee met for Italian food in Manhattan, where Gebbia discussed his planned retirement and floated the idea of a new organization led by MacPhee. Soon afterward, a small group — the CEOs, board chairs, immediate past board chairs, and chairs of each nonprofit’s governance finance committee — met at the Crosby Street Hotel for an initial discussion.

The small, informal get-togethers were necessary, MacPhee said, to allow leaders to get to know one another and articulate at the outset a clear list of things that might scuttle the merger.

The nonnegotiables, Gebbia said, included his desire that the new nonprofit would not serve only young people as JED does. He also insisted that it would continue to include a focus on scientific research and that its chapter structure would be incorporated into the new organization. JED was firm on the point that MacPhee pilot the new nonprofit.

With those principles agreed on, the two sides conducted due diligence on each other and ran revenue models that showed to their satisfaction that the combined group could increase revenue without cannibalizing fundraising efforts.

Time will tell if the deal will help the two organizations’ shared mission of reducing suicide. Both leaders think it will.

“We felt that a larger organization could be a little bit more of a center of gravity for the field, and that it could raise awareness and raise the profile of the issue,” MacPhee said.

Keep an Eye Out for Merger Opportunities

But taking time to thoughtfully complete a merger isn’t always possible. Many times deals are sought when the bottom is about to fall out and a charity’s leaders are looking for any help they can get, said Frank Williamson, founder of Oaklyn Consulting, a Chattanooga investment bank that specializes in nonprofit mergers and joint ventures.

That’s why nonprofit leaders should keep aware of opportunities to merge and regularly assess whether it is a good option, he said. It can be hard, he said, but nonprofits have a duty to ask whether they can be effective in pursuing their missions if they retain their current legal entity, or if a combination makes more sense.

Foundations should ask a similar question, Williamson said. 

“Donors should consider whether merger activity is a good investment,” he said. “Is it a better use of money than having it sitting around earning interest until the next grant?”

Ford’s Brandenburg thinks that in some cases, foundation assets can better help nonprofits if they support mergers that result in more sustainable organizations. 

The newly launched Collaborative Fund, focused on impact investing nonprofits, is a test, she said.. She hopes it sparks a larger conversation among her colleagues at Ford and throughout philanthropy about how foundation money can help nonprofits of all types that are struggling.