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- Not-for-profit mergers require boards to prioritise cultural alignment, stakeholder voices and regulatory complexities that commercial deals rarely involve.
- Rather than waiting to merge out of financial necessity, boards are urged to proactively seek strategic partnerships that build scale and advance their core mission.
- Successful mergers ultimately depend on establishing clear governance and leadership early.
In corporate M&A, organisations pursue scale and market share. In the not-for-profit sector, mergers require boards to maintain the trust of members, donors, volunteers and communities.
Two organisations can look aligned on paper – with overlapping services, compatible financials and complementary geography – but still be a poor cultural fit. That mismatch can show up as volunteer attrition, donor confusion and staff departures. Culture becomes the asset being acquired.
In a trade sale, shareholders vote, explains Cheryl Hayman FAICD, who serves across ASX-listed, private and not-for-profit organisations. “In an NFP merger, the people most affected – clients, members, the community served – often have no formal voice in the process at all. If the board does not deliberately build that voice in, no-one else will.”
What boards get wrong about NFP mergers
There’s a common misconception that an NFP merger is somehow easier because no purchase price changes hands, says Justin Audcent GAICD, a partner in Corporate Finance at RSM Australia, who authored its new report Mergers and Acquisitions in the Not-for-Profit Sector: A Guide for Board Directors and sits on two NFP boards.
“For many board members, this will be the first merger or acquisition they’ve ever been involved in. They may know their sector inside out, but not the complexities of bringing two organisations together,” he says.
That inexperience often shows up as avoidance. Directors may hesitate to pursue a merger opportunity, feeling that the independence of the organisation is being lost, or that a founder’s legacy is being compromised.
This can lead boards to bury their heads in the sand, says Audcent, rather than confront a challenging question: without gaining sufficient scale through a merger, will the organisation still be financially viable and delivering value to its community in five or 10 years’ time?
Organisations that come looking for a partner, he warns, are often seeking a way to survive rather than pursuing a genuine strategic opportunity that benefits both organisations.
“I encourage NFP boards to be proactive in identifying and approaching potential partners, which have shared values and bring clear strategic benefit,” he says. “My key message is, don’t wait for someone to knock on your door. Be the one knocking on theirs.
“Boards should never be afraid of a merger of equals. There can be a tendency to look only at smaller NFPs to absorb within your existing organisation. This may avoid some tough decisions around governance and control, but there could be much more to gain through a merger with a similar sized organisation.”
What the law actually requires
Underneath the cultural and strategic questions sit important governance requirements.
Funding and regulatory complexity is consistently underestimated, says Hayman. “ACNC [Australian Charities and Not-for-profits Commission] status, state-based charitable trust structures, donor-restricted funds, government contracts tied to a specific entity. This is a layer of regulatory complexity corporate M&A rarely carries, and specialist legal advice needs to be engaged early, not treated as a late-stage formality,” she says.
“A dollar donated for one purpose does not automatically become a dollar available for the merged purpose. Directors who miss that distinction inherit a compliance problem, not a bigger mission.”
Directors must act in good faith, for a proper purpose and in the best interests of the organisation, with the organisation’s purpose kept at the centre of the decision, says Elizabeth Wighton, partner at Gilbert + Tobin. “A merger should not be pursued simply because an opportunity exists. It should demonstrably advance that purpose.”
She suggests three tests every board should be able to answer before proceeding:
Is there genuine alignment of purpose, values and strategic objectives?
Has the board undertaken sufficiently rigorous legal, financial and operational due diligence to understand the risks it’s assuming?
Does it have a realistic integration plan covering governance, people, stakeholders and service delivery after completion?
Boards should also expect to manage conflicts of interest actively, take independent legal and financial advice, and document their reasoning. These obligations sit alongside insolvency and regulatory duties where an organisation is under financial pressure.
Getting governance right from the start
Unresolved authority can stymie a successful merger, for example, if issues such as who chairs, whose committee structure survives and whose CEO leads are deferred in favour of talking about mission compatibility.
“A merger without an agreed governance model is not a merger,” says Hayman. “It is two organisations sharing a logo while they work out who is actually in charge.”
Audcent says early communication is essential to give stakeholders and employees certainty about how the merged organisation will operate, who will lead it, and even what it will be called. The longer those decisions are left, the harder they get.
What success looks like
According to Wighton, a merger is not about simply making the organisation larger, or about doing the “right thing” by absorbing an organisation in financial distress. “A well-executed merger should strengthen the organisation’s ability to deliver on its purpose. Size and rescue are not, by themselves, a strategic rationale.”
Success is mission continuity, not multiples, she says.
“Directors who bring a purely commercial lens to an NFP merger will miss what matters. Directors who bring only goodwill and no deal discipline will also miss it, just in the other direction. The job of the board is to hold both at once.”
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