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Should there more M&A in the non-profit space?

In launching a for-profit venture, the end-goal for many businesses is to be acquired. Why don't we see nonprofit startups or social enterprises seeking M&A with existing organizations? Interested in hearing what you guys think.

4 Replies

Shobhit Verma
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Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
adoption ? Non-profits belong to the community so even when a larger non-profit acquires a smaller one, there is no money that should change hands. The larger organisation might simply pay the debts, unpaid bills and then support operations cost going forward.
That doesn't provide any incentive to the entrepreneur who made it all possible.

For-profit social impact based startups is a different game and can be acquired with right incentives.
John Seiffer
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John Seiffer Advisor
Business Advisor to growing companies
I'm going to take issue with your premise. The end goal for many INVESTORS is to have the company be acquired - that's the only way they can get a return on their money if they purchased equity. The end goal for a BUSINESS is to create a customer and make a profit doing so. [Peter Drucker said that not me].

FOUNDERS fall into a middle ground. Sure they can get rich by acquisition - if they grew fast enough after raising money. But it doesn't always work out that way. Even when companies get acquired, if the founders got too diluted by raising funds and the terms are not favorable, they can end up with very little for their sweat and tears. But the founders of bootstrapped companies can also get rich by serving customers profitably.

Non-profits generally have different end goals - to succeed in their mission. Certainly money is a part of staying alive to do that. But there are no investors to get a return by acquisition and so the only reason to be part of a larger organization would be economies of scale in accomplishing the mission.
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
I think there are some nonprofits that should lose their nonprofit status until such time as they refocus on being efficient and truly making a substantial positive impact on the community as is intended. I've think we've (the public as well as the execs and directors of many nonprofits) lost sight of what a nonprofit is or at least what the general public thinks a nonprofit is. I could see many big nonprofits with large cash reserves converting to for-profit orgs and getting acquired. I could see boards of directors of other large nonprofits encouraging mergers to take advantage of scale and efficiencies. When you see nonprofits like some of these listed below with the assets and cash reserves and personell expenditures and pension obligations they have they simply no longer comport with what the public thinks of when we hear the term "nonprofit":

1. NFL: $10 Billion in annual revenue. Paid their CEO (commissioner) $44M last year
2. Blue Shield of CA: $13.6 Billion in revenue, 5,000 employees, $4.2 billion in cash on hand, paid CEO $5M last year. They just had their state nonprofit status pulled.latimes.com/business/la-fi-blue-shield-california-20150318-story.html#page=1
3. Girl scouts: CEO paid $629,000/yr, 2,000 salaried employees, and a $347 Million pension deficit. Note: if the girl scouts paid 100% of their annual profit from cookie sales ($27.5 M last year) only toward their pension deficit it would take them 12.6 years just to meet their current pension obligation assuming the current pension obligation did not grow over that time period. That ridiculous. If the girl scouts cookie box had a warning label that said "all proceeds, less the $600k we pay our CEO and not including the $29M we annually pay our current employees, goes to pay down our $350M pension deficit" i suspect many customers would opt to find other ways to help their local girls organizations.
4. Boy scouts: CEO paid $1M last year plus benefits. Regional "scout executives" paid $200k+/yr salaries. Total salaries and benefits; $72.8 M/yr. Their annual report does not disclose how many employees they have.
5. Goodwill: $4B annual revenues, 300,000 employees (many paid below federal minimum wage). each state has multiple regional CEOs. Several Goodwill regional CEOs are paid over $300k/yr. http://www.huffingtonpost.com/john-hrabe/the-worst-corporation-in-_b_1876905.html

As any org gets larger it takes a more sophisticated management team to execute and i have nothing against talented executives being paid well, but i would submit that many of these orgs simply are not executing well in terms of fulfilling their mission.

Some of these companies no longer "belong to the community" as Shobhit mentions. We tend to think of nonprofits as organized collections of volunteers who exist to 'do good' for the community and many do, but there are many that have simply grown bloated and inefficient and seem to exist to provide executives with fat salaries rather than for the community benefit for which we intend.
Ryan Goos
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Ryan Goos Entrepreneur
Founder of Lightbox.io at Lightbox.io
Hey guys thanks for the many quality answers, I'd like to revise my question, meant to say should there be more M &A in the non-profit space? instead of adoption.
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