The merger spike that never happened

In the early months of the coronavirus pandemic, experts speculated that the crisis and its recession would cause many small nonprofits to merge with larger organizations or risk closing their doors forever. While charitable donations increased last year, it did not match the new need for human services as newly laid off people scrambled for food and basic necessities.

But consultants who spoke to NYN Media said the prediction that nonprofits would merge en masse did not bear fruit, owing to the federal government’s substantial pandemic relief programs.

“We thought we were going to see a lot of mergers, and we have not,” said Molly Penn, president of New York City-based Penn Creative Strategy, which consults for nonprofits. Penn attributed the lack of mergers to Paycheck Protection Program loans, which nonprofits used to apply for funding. But she said these mergers may still happen once the emergency funding lapses.

Penn said even arts organizations, who some had thought would be the most hard-hit, emerged relatively unscathed. Many arts organizations have missions that were not seen as vital during the early months of the pandemic, when distributing life-sustaining resources was the priority of most funders. And some of these organizations also made a good part of their revenue from in-person events, which evaporated in the pandemic’s early months. 

But Penn said the arts organizations that she worked with were able to utilize the U.S. Small Business Administration’s Shuttered Venue Operators Grant program, which distributed $8.4 billion to organizations that produced live events.

Tiloma Jayasinghe is the president and CEO of Community Resource Exchange, a nonprofit consulting firm that works with 700 nonprofits, and she agreed that there were fewer mergers than expected. “We’ve had some, but we haven’t seen a sudden uptick,” she said.

Both Penn and Jayasinghe said funders were also shifting their priorities to racial equity due to last year’s protests against police brutality and systemic racism, and that small to midsized organizations not putting racial justice at the center of their mission may have more difficulty in the coming months.

Jayasinghe cautioned that while mass mergers didn’t happen during the pandemic, it’s possible they will happen further down the line. “I think larger organizations have weathered the storm better,” she said, but smaller organizations still took hits to their revenue and had to scale back, even if most survived the pandemic. For small organizations, surviving is contingent on the economy returning to normal, which is now more uncertain with COVID-19 variants spreading.

Ultimately, she said mergers are contemplated in the nonprofit sector whenever there is an economic downturn, but these conversations are “all responses to a sector that hasn’t been invested in enough.”