Association for Public Policy Analysis & Management

The U.S. nonprofit sector contains approximately 1.41 million registered public charities (Urban Institute, 2015), the vast majority of which have annual expenses of less than $500,000. Some experts have questioned the welfare implications of a nonprofit sector of many small organizations, suggesting that this configuration results in unnecessarily high administrative costs and lost opportunities for activity coordination. These same commenters frequently propose that greater consolidation of nonprofit organizations might help to solve this issue by increasing organizational resources, coordinating activities, and thus achieving economies of scale and specialization (Sullivan, 2016).

The research field of corporate control in the business sector has examined the causes and effects of merger and acquisition activity in for-profit industries. Nonprofit scholarship, however, has been limited due to data and lack of concerted interest. Recently, several researchers have conducted case studies of nonprofit mergers, with the goal of identifying best practices (Haider, 2007; McLaughlin, 2010; Haider, Cooper and Maktoufi,2016; Seachange Capital Partners, 2016). While these studies provide important and valuable insights into the nonprofit merger process, they have two key limitations. First, each looks only at mergers in a small “window” of the nonprofit sector defined by a specific geography or affiliation with a specific funder. Second, they generally focus on self-reported or interpretive measures of merger success, limiting comparability between cases.

Our project addresses these limitations through the use of the new IRS 990 e-file database. In 2016 the IRS began releasing data from nonprofit e-filers in a digital format that allows access to all fields available on the 990 form and schedules. To identify mergers and acquisitions, we are able to use fields available on Schedule N, which reports disposition of assets, closure, and combining of management across organizations. By operationalizing mergers using this fields we can identify over 8,000 cases that have occurred between 2012 and 2014.

We develop a taxonomy of nonprofit mergers by examining which pairs of organizations are most likely to merge using descriptives like size, age, subsector and market share. We also look at the fiscal health of merging nonprofits to identify those with strong and weak financials. We expect to see cases where weak nonprofits merge with stronger nonprofits, and cases where small and strong nonprofits join to form larger nonprofits with more market share. Using these variables we will develop a taxonomy of nonprofit mergers to better articulate motivations and likelihood of occurrence. Our study has important implications for nonprofit organizations considering mergers, for state regulators that monitor nonprofit merger activity, and for methodologists who analyze data from IRS Forms 990.

References

Haider, D. How nonprofits partner. (2007). Stanford Social Innovation Review 5(3): 52-55.

Haider, D., Cooper, K., & Maktoufi, R. (2016). Mergers as a strategy for success. The Metropolitan Chicago Nonprofit Merger Research Project.

Lecy J.D. and Van Holm, E. (2018). The End is Nigh: Limits to Growth in the Nonprofit Sector. Working Paper.

McLaughlin, Thomas A. (2010). Nonprofit Mergers & Alliances. Wiley.

SeaChange-Lodestar Fund for Nonprofit Collaboration. (2016). Two-year grant survey analysis. Available at: http://seachangecap.org/wp-content/uploads/2016/09/SeaChange-Lodestar-Survey-Report-Redacted-Version.pdf