M&A and Nonprofits: Leveraging Acquisitions to Scale Your Mission

When we think about mergers and acquisitions (M&A), we often picture for-profit companies expanding their reach, diversifying their portfolios, or integrating vertically and horizontally to maximize efficiency and profit. But what about nonprofits? While it’s less common, strategic acquisitions can be a powerful way for nonprofits to scale their impact, reduce costs, and achieve long-term sustainability. If you’re leading a nonprofit, it’s worth considering how buying and converting a for-profit company into a benefit company or a nonprofit could significantly further your mission.

Imagine a nonprofit focused on installing wells in remote communities. One of the biggest costs might be sourcing concrete to secure the wells. Now, imagine if your nonprofit purchased a local concrete company. Not only would this allow you to cut down on material costs, but the revenue generated from supplying concrete to other companies in the area could provide a steady stream of funds, further supporting your mission. By thinking strategically and applying a for-profit approach to nonprofit goals, your organization can create a sustainable impact model.

Why M&A Makes Sense for Nonprofits

Nonprofits, like for-profits, often face resource limitations, competitive landscapes, and the challenge of scaling effectively. Acquiring a business can offer some of the same benefits to nonprofits as it does to corporations:

1. Vertical Integration to Reduce Costs
   By acquiring businesses that supply key resources or services, nonprofits can cut costs and streamline operations. For example, if your nonprofit provides affordable housing, acquiring a local construction company could reduce building costs, speed up project timelines, and give you control over the quality and availability of resources.

2. Horizontal Integration to Expand Services
   If your organization focuses on education, acquiring a tutoring business or a tech company specializing in educational software could help you expand your offerings. This not only broadens the scope of your impact but also allows you to control more of the services directly related to your mission, ensuring that every touchpoint aligns with your values and goals.

3. Creating a Steady Revenue Stream
   Running a nonprofit means constantly seeking funding, which can be exhausting and unpredictable. Acquiring a revenue-generating company provides an alternative source of income, decreasing dependency on donations and grants. By converting the business into a benefit corporation, your nonprofit can maintain mission alignment while generating profit that feeds directly back into your cause.

4. Localizing and Deepening Impact
   If your organization operates internationally, acquiring local businesses in target areas can help deepen your community ties, employ local workers, and ensure your nonprofit remains culturally sensitive and connected. Returning to the good installation example, buying a local concrete supplier in a remote area would not only cut material costs but also build community trust, provide local jobs, and strengthen relationships.

Steps to Acquire a Business as a Nonprofit

While buying a business may sound complex, nonprofits can go through a similar process as for-profit entities. Here’s how:

1. Identify Mission-Aligned Acquisition Targets
   The first step is identifying companies whose operations align with or support your mission. This requires a deep understanding of your organization’s needs and the barriers you face. For example, if your nonprofit’s mission is to increase sustainable agriculture, consider businesses involved in irrigation systems or organic farming supplies.

2. Assess the Financial and Operational Viability
   Buying a business is an investment, and not every business will be a fit. Look into the company’s financial health, customer base, and market positioning. Will it generate steady revenue? Does it offer an opportunity to streamline costs? Is it close to where you operate? Carefully evaluating these factors ensures that your acquisition will add value rather than drain resources.

3. Determine the structure: is it a benefit corporation or a subsidiary nonprofit?
   After purchasing a business, you must decide how to structure it. Many nonprofits opt to convert the acquired business into a benefit corporation—a hybrid model where the business operates for profit but is legally required to prioritize mission-driven goals alongside shareholder returns. Alternatively, you could set up the business as a subsidiary nonprofit that operates independently but contributes resources and revenue to your primary mission.

4. Integrate with Your Mission and Operations
   Once acquired, the business must be integrated into your nonprofit’s mission and operations. Establish clear goals, train employees on your mission, and ensure that any revenue generated is allocated toward furthering your cause. This may also include creating new roles within your organization to oversee the acquired business and track its alignment with your mission.

Real-World Examples of Nonprofit M&A

Some nonprofits have already started exploring M&A to advance their missions:

• Goodwill Industries: Goodwill is known for its thrift stores, but the revenue from these stores goes directly into job training and employment services. By running profitable stores, Goodwill reduces dependency on external funding and sustains its workforce development mission.

• Habitat for Humanity ReStores: Habitat for Humanity operates ReStores, which are home improvement thrift stores that sell donated items. The revenue from ReStores supports Habitat’s affordable housing projects, creating a self-sustaining cycle that funds their mission while serving the community.

In each case, the nonprofit has acquired or launched a business that aligns with its mission while generating income that directly supports its impact goals.

The Challenges and Risks to Consider

While the benefits of M&A for nonprofits are promising, there are some challenges and risks to be aware of:

• Mission Drift: When a nonprofit acquires a for-profit business, there’s always a risk that the focus on revenue generation could overshadow the mission. Clear structures, goals, and accountability measures are essential to ensure the acquisition stays mission-aligned.

• Legal and Regulatory Compliance: Nonprofits face unique regulations, especially regarding revenue generation. Before pursuing M&A, consult with legal and financial experts to ensure compliance with nonprofit laws and tax obligations.

• Resource Allocation: Acquiring a business requires an upfront investment, and there’s always a chance it could strain your resources, especially if the acquisition doesn’t perform as expected. A thorough risk assessment and sustainable financial plan are key to managing this challenge.

Conclusion: Scaling Mission with Strategic Acquisitions

Mergers and acquisitions aren’t just for corporations looking to maximize profits—they’re a powerful strategy for nonprofits looking to scale their missions, reduce costs, and create new revenue streams. By acquiring and converting a for-profit business into a mission-driven benefit corporation or nonprofit subsidiary, you can take greater control over your resources, expand your reach, and ultimately increase your impact.

Imagine the possibilities: a nonprofit dedicated to environmental conservation that owns a sustainable forestry business or a healthcare-focused nonprofit that acquires a medical supply company. With strategic M&A, the lines between business and mission blur, creating a model that not only serves the community but sustains itself in the process.

For nonprofits willing to think outside the box, M&A could be the key to unlocking greater impact and a more sustainable future. As mission-driven organizations continue to innovate, the potential for using business strategies to expand impact is only just beginning.