One of the questions I’m seeing pop up frequently on listservs lately is: Where can I go to get funding for a merger? It’s a good question. If you don’t have enough unrestricted funding available to pay for your I.T. system, chances are you don’t have funding available to pay for a merger or partnership. These strategies can be costly depending on the number of entities involved, their size, and the complexity of the deals. Here is where I recommend looking for funding for merger costs:
- Look to each nonprofit’s current donors. Even if your current donors do not specify that they fund merger and partnership expenses in their guidelines, if they are invested in your development as a nonprofit they may be willing to consider a one-time request from you for merger or partnership costs. Foundations usually see themselves as partners with their grantees; if they can be convinced of your business case to merge or partner with another nonprofit and if funding is available, the donor will often agree to make a grant towards the consolidation budget. Now, more than ever, donors are showing interest in nonprofits merging.
- Check the guidelines of all the capacity-building grant programs among your community’s donors. Many foundations have changed their capacity-building guidelines to address the current difficulties that nonprofits are experiencing. One of the changes they are making is to include the costs of mergers and partnerships. For instance, my own community foundation, The Chicago Community Trust, changed its guidelines for its Basic Human Needs program, which provides human service funding in the Chicago metropolitan area. In response to the need to assist with stabilizing the nonprofit sector, the Trust created several priorities, one of which is funding costs related to merger/consolidation or building alliances between organizations. That is a recent change. The Council of Community Services of New York State sent out a press release recently announcing that they are providing grants of $2,000 for merger, consolidation or subsidiary development. Watch for more guideline changes supporting these types of strategies in your community.
- Research national funding opportunities. These may be possible if you represent a nonprofit organization and are receiving grants from national philanthropies. If you aren’t getting these types of grants now, but believe your merger to have significant implications for your particular corner of the nonprofit world, then I would approach appropriate foundations after doing my research to see if they would be open to a discussion about a funding opportunity for a merger or partnership. Obviously, if you have a relationship with a philanthropy it makes the process easier; but I would not necessarily let the lack of an existing relationship stop you from trying. One foundation you should definitely research is the Lodestar Foundation based in Phoenix, Arizona. They have a specific strategy to fund nonprofit mergers and partnerships and will do so outside of the state of Arizona if there is a significant strategic incentive to do so. Check out their web site for more information and to see if you think your project would qualify.
- Look for in-kind contributions towards consolidation costs. It is typical to get various consolidation costs donated, especially legal services, but be careful about this. The legal services on a nonprofit merger are very important and are not the same as a for-profit merger. A common mistake that attorneys make who are brought in on a nonprofit merger is to treat these consolidations the same as a for-profit deal. They absolutely are not. One attorney represents both parties in a nonprofit merger. Be particularly careful about the type of in-kind services you use in the due diligence phase of a merger or joint venture.
Though funding new initiatives in the next few years may be nearly impossible, the area of nonprofit mergers and partnerships may turn out to be an exception to this given the support this strategy seems to now be generating from the foundation community.
Do you have other good ideas about funding mergers and partnerships? If so, I would love to hear about them. Write in a comment below so everyone can read them.
Jean Butzen, Mission Plus Strategy consulting, specializes in mergers and alliances in the Chicago area.