Nonprofit Mergers Gain Steam: When They Make Sense, What They Cost, and How Foundations Can Help

In 2025, many nonprofits find themselves navigating shrinking budgets, increased demand, and uncertain funding. The trend toward merger and consolidation is gaining momentum, and increasingly, nonprofits are asking foundations and other funders to help underwrite the transaction and integration costs.

This article explores:

• Why and when a nonprofit merger may make sense
• Key cost categories to budget for
• How to approach funders with compelling cases
• Accounting, compliance, and governance guardrails
• How a CPA firm like Baldwin can support the process

Why Mergers Are Gaining Traction in the Sector

Sector pressures are mounting

Nonprofits are squeezed by multiple forces: declining public and private support, rising operational costs, and growing expectations for measurable outcomes. Many organizations now see merger or consolidation not simply as a last resort but as a proactive strategic step to build resilience.

Research from leading industry publications shows that many charities in 2025 are actively seeking strategic partners and hope foundations that historically urged consolidation will now help pay for the costs. Sector analysts also argue that mergers should be normalized as a strategic tool rather than an escape plan. Instead of building programs or infrastructure from scratch, partnering with a complementary organization can accelerate mission impact.

Industry experts also note that mergers can deliver cost savings through economies of scale, reduced administrative duplication, and more stable operations.

Foundations’ evolving role: more than advocacy

While many foundations have long encouraged collaboration, fewer have stepped up to fund the transaction costs. Recent foundation reviews highlight how philanthropic institutions can play a vital role by offering not only grants but strategic and capacity-building support to facilitate mergers.

Observers now call for funders to cover due diligence, legal, and integration expenses so nonprofit leaders are not deterred by high upfront costs.

When a Merger Makes Sense (Versus Collaboration)

A merger is not always the first or best option. But there are clear signals when it may be the right move:

• Overlapping missions or geographies. When two organizations deliver similar services in the same region, combining may reduce redundancy and improve reach.
• Desire to scale quickly. If one organization already has infrastructure that another lacks, merging can shortcut the build-out.
• Leadership or succession concerns. A merger may ensure continuity when a founding leader retires or when no internal successor is ready.
• Financial fragility. If one or both organizations struggle with cash flow or fundraising volatility, a merger may offer stability.
• Funding considerations. Sometimes board or funder pressure leans toward higher-impact consolidation as a condition for continued support.

Before committing, alternatives should be examined:

• Shared services or back-office consolidation
• Joint programming or collaborations
• Fiscal sponsorship or affiliation
• Strategic partnerships short of full legal merger

A well-planned merger can preserve mission focus and strengthen impact, but a poorly structured merger may introduce risk or mission drift.

Key Merger Structures in the Nonprofit World

Nonprofits use a variety of models to combine operations:

• Statutory merger (legal consolidation). Two or more entities legally merge into a new or surviving entity.
• Asset or program transfer. Programs, assets, or contracts transfer from one organization to another without full merger.
• Parent-subsidiary model. One nonprofit becomes the parent while others operate as subsidiaries or affiliates.
• Affiliation with control changes. Governance or control is shifted while preserving separate legal entities.

From an accounting perspective, many nonprofit combinations fall under ASC 958-805, which treats nonprofit mergers differently from for-profit acquisitions. Under this guidance, a true merger is identified when the governing bodies of all combining organizations cede control to a new entity.

If one organization clearly controls another after the transaction, the acquisition method may apply, resulting in different accounting treatment.

Key accounting considerations include:

• In a merger accounted for under the carryover method, assets and liabilities combine at book value rather than fair value.
• In acquisitions, identifiable assets and liabilities may be recorded at fair value, and goodwill or intangibles may be recognized or amortized over up to ten years.
• New FASB guidance (ASU 2025-03) modifies business combination rules and may influence how organizations identify the accounting acquirer in certain scenarios.

These nuances underscore the importance of early accounting evaluation when structuring a merger.

What Costs to Budget: A Merger Cost Framework

One of the biggest deterrents for nonprofits considering mergers is the up-front cost. Below is a realistic cost framework:

1. Pre-deal and strategy

• Feasibility studies, readiness assessments, and facilitator or consultant support
• Partner search and exploratory discussions
• Board and stakeholder alignment workshops

2. Due diligence

• Financial audits and tax diligence
• Program performance reviews
• Legal review of contracts, leases, and licenses
• HR and benefits analysis
• IT systems and data privacy assessment
• Risk and insurance review
• Asset valuation, when required

3. Closing and approvals

• Legal drafting and negotiation
• Board votes and member approvals
• State attorney general or court approval when charitable assets are involved
• Regulatory filings or notifications

4. Integration

• Harmonizing HR, benefits, and payroll systems
• Merging accounting and reporting platforms
• Data migration and IT integration
• Branding and communications
• Change management and culture integration
• Facility or leasing adjustments
• Stakeholder and donor communications

5. Contingencies and monitoring

• Reserve for unexpected legal or regulatory issues
• Systems for tracking and reporting synergy realization
• External audit or independent review after closing

Because integration often spans 12–24 months, careful phasing and milestone-based funding are crucial.

These costs—particularly diligence, legal, and integration—are exactly where funders are being urged to step up.

How to Approach Funders for Cost Support

If a foundation or philanthropic partner has urged mergers in the sector, nonprofits are now asking a reasonable question: “Will you help us cover the cost of doing it right?”

1. Frame it as risk mitigation and mission protection

Highlight that investing in the merger’s success protects the funder’s mission and ensures service continuity.

2. Structure a phased request

• Phase I (diligence grant): Covers due diligence, legal review, and negotiations.
• Phase II (integration grant): Covers systems, rebranding, communications, and implementation.

Breaking funding into phases reduces funder risk and allows progress-based checkpoints.

3. Prepare a detailed budget and narrative

Include line-item costs, timelines, milestones, and risk mitigation plans. Link merger success to community outcomes and improved sustainability.

4. Reference sector precedent

Demonstrate that leading nonprofits and foundations already recognize the value of funding merger costs as a mission-aligned investment.

5. Offer transparency and reporting

Provide regular updates, governance safeguards, and independent oversight. Emphasize accountability and measurable results.

Governance, Compliance, and Reporting Considerations

Board and governance

• Clarify post-merger decision-making authority.
• Align board composition, committee structure, and conflict-of-interest policies.
• Approve merger documents and public communications.

State oversight and asset transfer

• Many states require attorney general or court approval for any transfer of charitable assets or control.
• Plan for review timelines and document all consents.

IRS and federal reporting

• If the merger terminates an entity or disposes of more than 25% of net assets, Form 990 Schedule N must be filed with required attachments.
• Update IRS registration, exempt status, and reporting structures for the combined entity.

Accounting impact

• Determine whether the transaction is a merger (carryover method) or acquisition (acquisition method) under ASC 958-805.
• In mergers, assets and liabilities combine at book value; goodwill is typically not recognized.
• In acquisitions, fair value measurements apply, and goodwill may be amortized or tested for impairment.
• Review the implications of ASU 2025-03 on identifying the accounting acquirer.

How a CPA Firm Can Be a Strategic Partner

Nonprofit leaders and boards benefit from having an experienced financial partner throughout the merger process. Baldwin CPAs can:

• Conduct readiness assessments and financial due diligence
• Build merger cost models and pro forma financials
• Advise on accounting treatment and reporting impacts
• Guide integration of finance, payroll, and reporting systems
• Support governance and compliance documentation

With guidance, mergers can become a pathway to stability, scale, and stronger community outcomes.

Final Thoughts

Mergers are no longer a last-resort survival tactic for nonprofits—they are becoming a strategic path to sustainability and greater impact. By understanding the financial, legal, and cultural complexities of these transactions, nonprofits can approach funders with confidence, plan for full integration, and strengthen their long-term mission.

With proactive planning, transparent reporting, and professional advisory support, the merger process can be both manageable and transformative.

About Baldwin CPAs

Baldwin CPAs is a firm with a strong focus on serving nonprofit organizations, providing assurance, tax, and advisory services tailored to mission-driven clients.

Our team helps organizations navigate change with clarity, compliance, and confidence, so they can stay focused on advancing their mission and serving their communities. Learn more by contacting us today.

Frequently Asked Questions

When is a merger better than collaboration?
When there is significant mission overlap, operational redundancy, or potential for measurable synergy that outweighs the costs.

What costs do funders typically cover?
Commonly, diligence, legal, facilitation, IT integration, branding, and communications—costs that enable sustainable consolidation.

Does the IRS require special filings for mergers?
Yes. If an entity terminates or transfers more than 25% of its net assets, Form 990 Schedule N is required.

Will new accounting standards affect nonprofit mergers?
Yes. Recent FASB updates (ASU 2025-03) refine how to identify the accounting acquirer and could affect reporting for some nonprofit combinations.