A flood of mergers has hit the West Michigan nonprofit sector in recent months and the trend is expected to continue as more organizations of all sizes seek efficiencies through consolidation.
Last month, Grand Rapids-based organizations Heartside Ministry and Mel Trotter Ministries formally merged after a two year “shared services agreement” that combined operational functions including human resources, facilities management and information technology.
“This was a very friendly merger,” Gregory Randall, executive director of Heartside Ministry, told MiBiz. “We serve the same population and the services complement each other very well.”
Both organizations are located in the Heartside neighborhood of downtown Grand Rapids. The district is a developing area in the city, home to hotels, museums, parks, the Van Andel Arena, the Grand Rapids Downtown Market and the new $160 million Studio Park development. Yet, the neighborhood had long experienced considerable urban decay and still has a disproportionate presence of people who are experiencing homelessness.
Heartside Ministry and Mel Trotter Ministries both have missions centered around religion, housing and homelessness.
The merger between the two neighborhood organizations is part of a growing trend among nonprofits to consolidate and collaborate to increase resources and efficiencies.
Since 2017, Heartside Ministry — the smaller of the two organizations — has hired Mel Trotter Ministries to provide facilities and administrative help, according to Randall.
“That was really a good way to get to know that the organizations, at many levels, partnered well,” he said.
It became apparent that the idea of further collaboration resonated with donors and key stakeholders, he said. In December, boards of both organizations agreed that Heartside Ministry would become a division of Mel Trotter Ministries.
Reducing costs, eliminating potential duplication of services and creating a greater effect for the people the agencies serve were the driving forces for the merger, Randall said.
“The message from the donors has been to collaborate as much as you can,” he said. “This is a really clear signal to the donors that by combining forces here, we’re going to be very efficient and we’re going to have a bigger impact in terms of helping the folks in the Heartside neighborhood.”
While Randall would not disclose terms of the deal, he did say he expects Heartside Ministry to have access to greater resources as a division of Mel Trotter Ministries.
Mel Trotter Ministries claimed more than $10 million in revenue in 2018, according to tax filings from the organization. Heartside Ministry was not previously required to file an annual return with the IRS because of its designation as a church.
“When you combine resources like we’re doing here, and we have a vision that is very similar for the people we serve, I think that is only going to open up more possibilities for the kind of services we can provide,” Randall said.
More deals ahead?
Mergers were one of the top 10 nonprofit industry trends for 2019, according to a July report from accounting firm BDO USA LLP, which cited program expansion as a key driver of nonprofit mergers.
According to the report, 40 percent of nonprofits surveyed were considering the possibility of entering a strategic partnership with another nonprofit organization, while one in four said they might enter into a joint partnership with a for-profit business.
In addition to the merger of Heartside Ministry with Mel Trotter Ministries, the last couple of months has brought a barrage of similar deals in the region. They include: Niles, Mich.-based Big Brothers Big Sisters of Lower West Michigan merging with South Bend, Ind.-based Big Brothers Big Sisters of St. Joseph County; The Association for the Blind and Visually Impaired merging with and becoming an independent subsidiary of Mary Free Bed Rehabilitation Hospital; and Muskegon-based industrial history center The Heritage Museum being acquired by the larger, multi-site Lakeshore Museum Center.
Earlier last year, the merger of Porter Hills Presbyterian Village Inc. in Grand Rapids and Chelsea-based United Methodist Retirement Communities Inc. brought together the strengths of two prominent senior living nonprofits in the region. The combined organizations serve more than 6,700 senior citizens annually in 22 counties across the Lower Peninsula and generate $120 million to $150 million in annual revenue.
“(The merger) is really two very like-sized organizations choosing intentionally to come together, not out of a dire need, but of a desire to strengthen our ability to serve those that live with us or receive our services,” United Methodist Retirement Communities President and CEO Steve Fetyko told MiBiz in October. He said the merger was a way to strengthen the new collective organization in order to remain independent from “larger health systems.”
On an even greater scale, the February 2019 merger of New York City-based Foundation Center and Williamsburg, Va.-based GuideStar — two giants with missions centered on public information in philanthropy and nonprofit transparency — was a major development in the field.
To fund the costs of creating the new venture, called Candid, the organization raised nearly $27 million from the Bill & Melinda Gates Foundation, Charles Stewart Mott Foundation, and William and Flora Hewlett Foundation, among others.
“That was such big news in the field that it prompted us to look at the larger incidences of that kind of merger,” said Tory Martin, director of communications and engagement for the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University.
The Johnson Center recently released a report that included philanthropic collaboration and consolidation as an important trend in philanthropy in 2020.
While the benefits to consolidation may seem many, there are also potential pitfalls in the shifting landscape. Mergers and acquisitions may result in “fewer resources and thinkers” available to solve community-wide issues, according to the report.
Just as in the for-profit sector, nonprofit labor constraints clearly seem to be a factor in consolidation.
In a 2017 report from Worldwide Initiatives for Grantmaker Support, a network of philanthropy associations and support organizations, 65 percent of respondents said staffing was a challenge for their organization.
However, consolidation seems to be an increasingly popular way for nonprofits to right-size their operations without endangering the programming and services that remain central to their missions and the purpose of their existence.
“It’s still a question of funding, but it’s also a question of why have several organizations doing the same thing when we could have one organization that can be more than the sum of its parts,” Martin said.
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