Originally published in Indian Development Review.
Mergers & Acquisitions (M&A) are common in the corporate world; they are undertaken for various reasons–expansion into new markets, increasing market share, acquiring complementary capabilities, and improving cost and capital efficiency. The eventual goal is to maximise shareholder value.
In 2016-17 alone, there were more than 600 M&A transactions in India worth USD 61.26 billion. In contrast, the nonprofit sector in India saw no such activity during the same period. We believe that M&A can be used in the development sector as well–as a strategic tool to drive larger impact and greater efficiency.
SEVERAL BENEFITS COULD ACCRUE FOR ALL STAKEHOLDERS INVOLVED
India’s nonprofit sector is large and highly fragmented and characterised by a long tail of sub-scale organisations. Typically:
- Many nonprofits have overlapping missions, programmes and areas of operation
- Multiple organisations target the same set of people
- Funders deal with several small-scale implementation partners, and
- Individual nonprofits incur disproportionate spends on fundraising, outreach and administration
Mergers between nonprofits can address many of these inefficiencies and unlock benefits for all stakeholders involved: people served, donors as well as the nonprofits themselves.
- Donors will incur lower search, management and coordination costs with fewer implementing nonprofits; this will free up funds for core activities and investments.
- Merged nonprofits will acquire complementary capabilities, expedite time-to-market, rationalise costs, attract more funding and talent. More importantly they will be able to offer a better proposition to the people they serve through more holistic offerings, and drive more impact.
LARGE NONPROFITS AND DONORS ARE BEST POSITIONED TO TAKE THE LEAD ON M&A
- Large nonprofits with ambitious missions that are looking for their next area of growth may be better off acquiring smaller nonprofits with complementary products and services instead of building these capabilities organically.
This will significantly reduce time-to-market and give them access to expertise and technical knowhow as well as customer relationships that may not reside within the organisation.
- The smaller nonprofits stand to gain as well as they can access larger resource pools, more experienced management, and a platform to scale-up more rapidly. A 2015 study reported that in 88 percent of the cases, merged nonprofits reported being better off, after the merger, in terms of achieving their organisational goals and increasing collective impact.
- Donors have visibility on their portfolio and able to see cost- and impact-synergies across their grantees. They could consider suggesting integration between nonprofits to drive greater efficiency and effectiveness. In the process also delivering greater ‘bang for their buck’.