Article
Building stronger together: M&A due diligence for NFPs
Collaborations to advance your NFP - A Baker Tilly series
Oct. 17, 2023 · Authored by Riley Newsome
This is the second article in our NFP collaboration series.
Not-for-profit (NFP) mergers and acquisitions (M&A), joint ventures and strategic alliances have become increasingly important as organizations face challenges such as funding constraints, competition, and changing regulations and marketplaces. M&A can help NFPs address these challenges and achieve their mission more effectively. A merger or acquisition can also help organizations expand their reach and improve their programs and services by combining resources and expertise.
M&A and other collaborative arrangements can provide several benefits to organizations, including:
- Improved efficiency and effectiveness: M&A can help not-for-profits improve their efficiency and effectiveness by combining resources, reducing duplication, creating economies of scale, and sharing best practices.
- Increased impact: M&A can help organizations increase their impact by expanding their reach, improving their programs and services, and addressing organizational challenges.
- Financial stability: M&A can help NFPs achieve financial stability by combining resources and creating a more sustainable business model.
When an NFP organization considers a merger or acquisition to achieve its mission and goals, financial due diligence plays a critical role in the process. Financial due diligence helps organizations on both sides of the deal assess their own position as well as the financial health and performance of the potential partner organization and identify any financial or risk profile issues that may impact the transaction.
Let’s explore some of the financial due diligence considerations for not-for-profits.
1. Financial statements review
The financial statements of the potential partner organization should be reviewed carefully to assess the financial health and performance of the organization. This review should include an analysis of the target entity's financials at the trial balance account level, at which level most effectively allows for analysis of account level trends and anomalies. The review should also assess the quality of the financial statements, including the accuracy and completeness of the financial data.
