How foundations can support nonprofits in M&A
As nonprofits confront rising pressure to deliver impact with constrained resources, leaders increasingly recognize collaboration, merger, and consolidation as strategic tools for resilience and continuity. Yet fear of reputational risk, internal disruption, and funder misinterpretation too often keeps these options trapped at the level of theory rather than action.
Nonprofit mergers and alliances (M&A) fails less because of weak strategy or unwilling leaders, and more because philanthropy has not normalized, financed, or legitimized structural change as a responsible form of stewardship.
Nonprofit leaders are often deterred from even considering M&A out of concern for how it will affect their funding relationships. Many foundations effectively control “survival capital,” and a proposal to explore a merger can be misread as an admission of failure rather than prudent stewardship, even when the underlying motivation is long-term impact and stability.
This perception gap constrains action. Funders, boards and executives may toy with the idea of a merger informally but stop short of commissioning real feasibility work or engaging potential partners in depth. The risk to reputation feels too high, and the capital to explore options is too scarce. In this environment, foundations have an unusually important role to play, not only by supplying money, but by signaling their support for exploration, and, in doing so, for demonstrating that structural change can be a mark of strategic maturity.
The other significant constraint to M&A in the sector is the lack of resources. Nonprofit M&A exists on a spectrum: on one end sit lighter-touch alliances and partnerships—shared services, joint programs, co-location—that many organizations can pursue with modest incremental support. The other end is full mergers and complex affiliations, where assets, liabilities, and leadership roles are reconfigured. It is in this heavier zone that philanthropic finance becomes most critical, because most nonprofits simply do not have sufficient flexible funding in their budgets to pay for external expertise that can facilitate the success of mergers.
That missing infrastructure shows up in four recurring gaps, each of which is, at bottom, a financing issue:
The first is bandwidth: Nonprofit staff are already stretched thin trying to maximize their impact with resources that never seem sufficient for the challenge they’re addressing. Without funding to bring on external support, executives are forced to treat complex transactions as side projects.
The second gap is expertise. Specialized legal, financial, and technical advice is essential to structure deals that are fair and transparent, but it is rarely budgeted. Dedicated dollars for M&A counsel, financial modeling, and due diligence help boards understand what they are taking on and protect all parties involved.
The third gap is neutrality, which also has a financial dimension. Trusted, neutral facilitators, people with no stake in which organization “wins”, rarely come for free. Funding for these roles makes it possible to surface and work through sensitive questions about power, leadership, and brand without derailing the process.
The fourth gap is capital itself. Beyond professional fees, real money is required to merge systems, integrate or exit leases, harmonize benefits, and resolve one-time obligations such as severance or debt. These are transition investments: targeted, time-bound grants can cover them without permanently inflating operating budgets.
Because these gaps emerge at different points in the journey, finance must follow and support the pace and lifecycle of the combination or merger. In the exploration phase, external support is needed to facilitate “first dates”: facilitation of confidential board-to-board conversations, high-level feasibility assessments, and structured needs assessments that ask whether M&A is really the right tool - and in what form. The financial needs at this stage are relatively small, but they unlock disciplined decision-making by providing analysis and process design that nonprofits may not otherwise undertake.
One practical implication is that funders can reduce risk by breaking support into phases and tying subsequent tranches to clear milestones, thereby highlighting that investing in the merger’s success protects the funder’s mission and ensures service continuity.
If the parties decide to move forward, transaction-stage needs come to the fore. At this point, costs become more concrete and finance is used to de-risk the mechanics of the deal: legal drafting and due diligence, financial reviews, communications and rebranding work, and convenings of boards and senior staff. By explicitly covering these hard costs, funders reduce the temptation to cut corners, whether it’s skipping stakeholder engagement, rushing legal review, or underinvesting in change management.
The final phase is integration, which is often where under-financed mergers falter. This is the slow work of actually becoming one organization: merging HR and IT systems, aligning pay and benefits, integrating cultures and values, and building new routines for learning and accountability.
The needs look different from core operating support: declining over time and focused on one-time or front-loaded costs like system migrations, team-building, and temporary duplication during transition. When foundations commit to this kind of support, they help ensure that the merger’s promised efficiencies and impact gains are actually realized.
Throughout all three phases, funders can blend their financial capital with other forms of capital. Social and temporal capital can be deployed by using networks to make introductions between potential partners, convening peers who might otherwise see each other only as competitors, or relaxing grant timelines and reporting demands to give leaders the time they need. Moral and operational capital can be just as important: publicly validating well-considered mergers, providing boards with political cover, and sharing expertise on HR, finance, operations, IT, or evaluation so that grantees are not handling complex integrations alone.
When foundations provide both the resources and the license to reconsider organizational form, they help make transformation a normal part of nonprofit life rather than an emergency measure of last resort. Crucially, they also make it a normal part of philanthropy, reinforcing the effectiveness, impact, and credibility of the sector and the nonprofit ecosystem it supports.