Fortune Favours the Bold: Unlocking Value during Tumultuous Times

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Written By: Jeremy Busch-Howell, member of the Board of Directors

Things appear grim in Alberta. While dwelling on our current economic uncertainty is more than a bit unpleasant, nearly every reputable bank or relevant government agency correctly predicted a mild recession for 2015 and, with the price of oil remaining incredibly low, are predicting a mild recession for 2016 as well.

Nearly all sources of non-profit funding have begun to tighten their spending, and non-profits are beginning to feel the pinch. To cope, non-profits have been cutting programs to maintain viability, hoping they have enough cash reserves to last until things start to look better. For some, things appear to be hopeless, and winding-up the organization may appear to be the only option.

Luckily, appearances aren’t everything.

Non-profits have begun to consider strategic alternatives to winding-up their enterprises, including joint ventures, strategic partnerships or even mergers. While the consideration of these alternatives is driven by turmoil and uncertainty, the opportunities that can be unlocked by utilizing these structures are significant.

Joint ventures and strategic partnerships typically involve two or more non-profits temporarily pooling resources and expertise to carry out a common purpose. The net effect of such temporary cooperation will be reduced costs as the non-profits rely on each other to supplement the objectives of the other in the provision of specified services for a specified duration. However, it is unlikely that a joint venture or strategic partnership will be sufficient to resolve any significant financial or organizational difficulty many non-profits are facing.

Despite its similarity to joint ventures and strategic partnerships, the concept of mergers in the non-profit sector meets heavy resistance. Mergers are viewed as an acquisition by one entity of another; a hostile mechanic more suitable in the for-profit sector. Despite this stigma, mergers are more akin to the greatest form of non-profit cooperation possible. Merging non-profits will combine assets, permanently reduce costs by eliminating redundant administrative costs and thus increasing the human capital available to invest in the cause the non-profits represent. Members receive more effective and efficient services and there is less “market confusion” and competition for funding. In fact, organizations that are the subject of a merger can even continue to exist with a measure of autonomy from one another, where appropriate, to ensure that no new inefficiencies are created and that the consolidation process is successful.

However, when considering whether a joint venture, strategic partnership or merger is a viable alternative to winding down your non-profit, there are a number of things to consider. Are there compatible non-profits with compatible causes? Do those non-profits have the financial and organizational fortitude to complete such a transaction? Are the stakeholders of each non-profit open to the idea of joint venture, strategic partnership or merger, and will they be better served?

We will discuss these considerations, and more, in a later blog post.

Engaging in a joint venture, strategic partnership or merger may have significant legal and tax consequences. Non-profits are encouraged to obtain the advice of legal counsel, accountants and other professional advisors before initiating such a transaction.

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