Nonprofit Merger Guide: Process, Checklist and the Leader’s Seat

The other organization’s board chair has asked you to coffee, and you already suspect what is on the agenda.

This nonprofit merger guide covers the process, a checklist, documented examples and what happens to the executive director. If the talk follows a funding shock, read it alongside nonprofit crisis management.

What Are the Options Short of a Merger?

Nonprofits can work together without merging. The options run from strategic alliances and coalitions, through joint programs and shared back-office services, to a parent-subsidiary structure and a full legal merger. Each step gives up more independence, so start with the goal. If it is reach or efficiency, a lighter option may meet it with less risk.

The Bridgespan Group describes the same spectrum, and nonprofit restructuring is the umbrella term for all of it. “Nonprofit mergers and acquisitions” also covers several legal forms. The 2016 Metropolitan Chicago Nonprofit Merger Research Project, which studied 25 mergers completed between 2004 and 2014, lists four forms of combination, and your attorney will recommend one:

• Acquisition merger: one organization dissolves into the other.
• Asset transfer: one organization hands over its assets and settles its liabilities separately.
• Merger of equals: both dissolve into a new organization.
• Change of control: one organization controls the other, for example as its parent, and both entities remain, a step short of a full merger.

Why Do Nonprofits Merge?

Nonprofits merge to grow programs, reach more people, steady their finances or resolve a leadership transition. In the Chicago study, almost every participant named growth as the main goal, including organizations under financial strain. In 52% of the 25 mergers, one chief executive was retiring or about to retire, or an interim was in place.

Financial weakness entered the acquired organization’s decision in 56% of the cases, and in 80% the two organizations had already worked together.

A leader’s exit is a common opening, since a merger can stand in for a search. If your founder is stepping down, weigh the founder transition options before the board drifts into one path by default.

When should you not merge? Agree before due diligence what would end the conversation, such as a narrower mission or numbers that only work through cuts the people you serve would feel. A merger studied from strength is one of several organizational resilience options, and walking away can be the right outcome.

What Are the Steps in a Nonprofit Merger?

The nonprofit merger process runs in seven steps: confidential exploration, a letter of intent, due diligence, an integration plan, board votes, state and federal filings, and the announcement. Most mergers in the Chicago study took about a year. The shortest took six months, and the longest ran three to four years.

1. Exploration. Board chairs and chief executives test the fit in confidence.
2. Letter of intent. A short document sets out the proposed structure, name, board makeup, leadership and timeline.
3. Due diligence. Attorneys and accountants examine each side’s finances, liabilities, contracts, restricted funds and programs.
4. Integration plan. A joint committee decides structure, reporting lines, systems and the first budget.
5. Board votes. Each board approves the merger. If you have voting members, ask your attorney whether they vote too.
6. Filings. Your attorney handles state documents and notices, and the organization that ceases to exist notifies the IRS.
7. Announcement. Staff hear first, then funders, partners and the people you serve.

Filing rules differ by state. In California, the Attorney General’s nonprofit transactions page lists mergers among the nonprofit transactions that call for a notice or request to that office under state law (Corporations Code sections 6010, 8010 and 9640).

Federally, IRS guidance on terminating an exempt organization says an organization that files Form 990 or 990-EZ reports its termination on a final return, due by the 15th day of the fifth month after the termination date, with Schedule N and certified copies of its articles of merger and its merger resolutions or plan. This is general information, not legal advice.

What Goes on a Nonprofit Merger Checklist?

A nonprofit merger checklist groups the work into seven areas: governance, finance, legal, people, programs, communications and leadership. Use it as the agenda for the joint merger committee, and mark early which items an attorney or accountant must review. Leadership is the group most checklists leave out, so put it on the first agenda.

• Governance: bylaws and the makeup of the combined board.
• Finance: three years of audits and Form 990s, debts, restricted funds and a combined budget.
• Legal: contracts, leases, insurance, pending claims and grants that need funder consent to transfer.
• People: pay and benefits, overlapping roles, retention and a fair process if positions are cut.
• Programs: overlap, outcome data and continuity for the people you serve.
• Communications: the name and the order of the announcement and stakeholder messaging.
• Leadership: who leads the combined organization and what happens to each executive director.

Naming or branding was a difficult issue for the boards in 44% of the Chicago mergers. For donor-designated funds and bequests, the study mentions a separate foundation attached to the new organization as one option, with an attorney advising. For each overlapping role, ask who holds it on day one and how that choice gets made.

What Happens to Staff and Culture?

Staff feel a merger as uncertainty about jobs, managers and identity, often before any vote. In the Chicago study, cultural integration proved harder than board members had expected in 64% of the mergers. Tell staff what you know, what is not decided yet and when they will hear more, and keep to that date.

Where both organizations run the same functions, staff reductions after a merger are possible, and rumors travel faster than plans. Commit only to what you can keep. The leaders of the UCP Seguin merger assured staff that no one would lose a job, benefits or pay, and their programs barely overlapped.

Staff will fill every silence about the merger with their own version of it.

Culture shows up in how meetings run and who decides. The habits of leading people through change apply: say what is changing and what is staying. A merger on top of a funding cut adds to change fatigue, so pace the integration.

What Are Some Nonprofit Merger Examples?

Documented nonprofit merger examples include UCP Seguin of Chicago, formed in 2013, three Chicago-area hospices combined under the JourneyCare name, and the Eleanor Foundation’s 2012 merger into the Chicago Foundation for Women. All three are named case studies in the 2016 Chicago report, and in each, leadership or legacy questions shaped the deal.

UCP Seguin. United Cerebral Palsy of Greater Chicago (budget about $9 million) joined Seguin Services (budget about $27 million) after UCP’s retiring chief executive proposed looking for a merger partner instead of a successor. According to Stanford Social Innovation Review, the two knew each other from earlier collaborations, courted for five years and were both financially healthy.

JourneyCare. Three neighboring hospices formed a 12-member joint committee of board chairs, board members, chief executives and senior staff. About six months in, JourneyCare’s board made naming its chief executive a condition. Another chief executive was already retiring, and the partners agreed, though one partner’s finance chief and two vice presidents left during the talks.

Chicago Foundation for Women. Preserving the Eleanor Foundation’s grant-giving model was a deal-breaker. Four years later, the combined foundation had doubled its assets, according to SSIR.

One caution: participants in 88% of the mergers felt the organization was better off, but the researchers interviewed only executives and board members, a bias they name themselves.

What Happens to the Executive Director?

The executive director’s role is one of the hardest questions in a nonprofit merger. The Chicago study found that chief executive succession can be contentious, and Bridgespan names finding roles for senior staff as one of three issues over which promising combinations often fall apart. Raise it before the letter of intent, while every option is still open.

Due diligence covers the finances and the programs. It rarely covers the question you are lying awake with: what happens to your role, and how do you want to leave if it ends?

Some acquired chief executives stayed on as second-in-command or senior program director. In one case the smaller organization’s chief executive and nine staff members lost their jobs. In another, two chief executives who could not work together helped break the merger apart.

Name your preference early: lead, take a defined second role, stay for a set transition or leave with a planned handover. It can feel self-interested, yet silence pushes the question into the most fragile stage. The question reaches the IRS filing too: the dissolving organization’s Schedule N asks whether any officer, director, trustee or key employee is or will be involved in the successor.

A board chair or board member was the chief merger advocate in 85% of the Chicago cases, so the person negotiating your future may be your employer. Focus on what you control, such as what you raise with your chair and what you ask to have in writing. If your role is ending, plan the exit as carefully as the merger, with leadership transition support for the handover.

Where Can Leaders Get Support in a Merger?

Leaders in a merger draw support from the attorney and accountant on the deal, peers who have been through a merger, current funders, and a coach outside both organizations. Legal and financial questions go to the professionals. Coaching covers the leadership decisions around them, including your own role and the team you will lead.

1. Attorney and accountant. They own the filings and the financial review. When a need is legal or technical, the Center for Nonprofit Coaching says so during matching.
2. Peers. Ask your state nonprofit association to connect you with an executive director who has led one.
3. Funders. Donors paid part or most of the merger costs in 44% of the Chicago cases, so ask yours.
4. Coaching. A coach sits outside the board, the staff and the funders, a confidential place to think through the merger and your own role. At the Center, volunteer coaches donate their time, so six sessions of one-on-one coaching for the executive director cost $300, $400 or $600 for operating expenses under $250,000, under $500,000 or over $500,000. Six sessions of executive team coaching for merging leadership teams cost $500, $700 or $1,100. Both run 85%+ below market rate.

Six confidential sessions help a leader see two or three patterns, such as how you handle the board chair under pressure. Board members weighing that cost can read why boards invest in executive director coaching.

Before the next meeting, write down the three conditions that would end the conversation and the role you want if it goes ahead. If you lead a 501(c)(3) nonprofit, a government agency or an analogous organization outside the United States, apply for coaching.

Frequently Asked Questions