Phase 1 of a Nonprofit Merger: The Exploration Stage

The exploration stage of a nonprofit merger is where nonprofit leaders first begin to assess whether a merger of nonprofit organizations might make sense. For executive directors and board members, this phase is about gathering enough information to decide whether the idea is worth pursuing further. Unlike for-profit mergers, the aim is not maximizing shareholder value but strengthening mission delivery, ensuring sustainability, and improving community impact.

This short guide intended to support Executive Directors and Board members covers the key activities, decisions, and risks at this stage. Other articles in this series will address later phases in more detail, including due diligence, integration planning, and implementation.

At Two Five One, we guide organizations through nonprofit merger exploration by combining nonprofit expertise with business strategy, M&A, fundraising, and organizational design experience. We help determine whether a merger aligns with your mission, funding realities, and long-term strategy before you commit to formal due diligence.

Shortcut - Links to other nonprofit merger phases:

Phase 1: The Exploration Stage
Phase 2: Due Diligence and Strategic Planning
Phase 3: Integration Planning (or Transition Planning)
Phase 4: Implementation (or Transition)
Phase 5: Transition to "Business as Usual" 

Key Activities in the Exploration Stage

In this early phase, you are testing the waters. The aim is to gather data, engage the right people, and clarify whether a merger is a realistic path forward or is in the best interest of the mission. 

When there is no burning platform we recommend exercising this “M&A exploration” muscle alongside your traditional planning cycles. This will help the leadership team be ready when opportunities or significant moments of change might force the issue (see our article).

External facilitators can support these activities to ensure they remain objective, focused, and mission-driven. Our team would be happy to brainstorm.

1. Define the Strategic Rationale

Clarify why you are considering a merger.

• Identify challenges or opportunities prompting the discussion such as financial pressures, leadership transitions, overlapping missions, or funder encouragement.
• Determine whether you see the merger as a survival strategy, a growth opportunity, or a way to increase efficiency and impact.
  

2. Build an Updated Organizational Snapshot

Maintain a concise one-page document summarizing your mission, vision, key programs, major funders, staffing structure, and high-level financials.

• Use this to ground your board and staff in the essentials.
  
• Share it with potential partners or funders to provide a quick, accurate overview.
  
• Eventually, a version of this will also help in future phases as you interact with potential partners.

3. Explore Potential Nonprofit Merger Partners

Scan for organizations with compatible missions, service areas, and values.

• Look at current collaborators and those in adjacent fields who share your goals.
  
• Assess whether any have expressed interest in closer collaboration or a merger.
  
• Research their public reports, Form 990s, and strategic plans.
  

Detailed checklists exist to guide your research and what to look out for. Don't hesitate to reach out if you are interested.

4. Conduct a Preliminary Compatibility Check

Review documents and data to gauge fit before deeper discussions.

• Compare mission statements, strategic plans, and financial health.
  Identify overlaps in programs and audiences.
  
• Consider whether their reputation, culture, and leadership style align with yours.

5. Complete a Merger Feasibility Assessment

Before moving toward due diligence, take a structured look at whether a merger appears viable - even at a high level.

• Assess potential benefits in mission impact, funding stability, and operational efficiency.
• Identify possible risks and deal-breakers such as conflicting priorities, cultural incompatibility, or governance issues.
  
• Gather input from board leaders, senior staff, and trusted advisors.
  
• If appropriate, seek early feedback from key funders, some of whom may support feasibility work financially.
  

Decisions to Make in the Exploration Stage

This stage leads to some important go/no-go decisions:

• Is a merger worth further investigation?
  
• What type of structure might fit best: full integration, program consolidation, or shared services?
  
• What is the organization’s appetite and capacity for change among the board, staff, and funders?
  

Recommendations for a Strong Exploration Process

The exploration stage benefits from early engagement and professional guidance.

• Engage the Board Early: Their strategic perspective and networks are valuable in assessing fit and identifying risks.
  
• Involve Senior Staff: Program, finance, and fundraising leaders can flag operational or cultural issues. We acknowledge some merger exploration must remain confidential.
  
• Talk to Key Funders: Some may offer funding to support merger exploration.
  
• Consult Legal and Financial Experts: Seek a lawyer and CPA experienced in nonprofit M&A to understand legal, tax, and compliance implications early (happy to introduce experts)..
  
• Use a Neutral Facilitator: An outside consultant can manage sensitive discussions, keep the process on track, and focus on mission-driven goals.
  

Stakeholders to Involve

Mergers are not decisions to make in isolation. While the confidential nature of this phase may preclude you from involving staff, consider including:

• Board of Directors for governance oversight
  
• Executive leadership including the ED/CEO and senior functional leaders
  
• Major funders and donors
  
• Trusted advisors in law, finance, and nonprofit strategy

Risks in the Nonprofit Merger Exploration Stage

If you decide to proceed with Due Diligence, understanding risks early in this stage will help avoid setbacks in future phases:

• Overcommitting before confirming feasibility can cause staff or donor uncertainty.
  
• Mission drift from pursuing partners without strong alignment.
  
• Reduced funder confidence if communication is unclear.
  
• Cultural mismatch that will be difficult to address later.

Looking Ahead to the Next Phase

If exploration suggests a merger could deliver strategic value, the next step is due diligence. This phase involves deeper reviews of finances, operations, governance, fundraising, and culture, supported by structured checklists and professional evaluations.

Final Thoughts on the Nonprofit M&A Exploration Phase

The exploration stage sets the tone for the rest of the nonprofit merger process. Done well, it clarifies goals, builds buy-in, and confirms whether pursuing a merger of nonprofits organizations is a smart strategic move. By approaching it with discipline and objectivity, leaders can enter the next phase confident they are pursuing the right path.

Two Five One Consulting was founded to bridge nonprofit and business expertise in service to the social sector. Our team brings nonprofit leadership, business M&A, fundraising, and organizational design expertise to help you navigate this process. We provide strategic guidance and hands-on support for exploration, planning, and implementation. 

Our experience in mergers spans guiding nonprofit leaders through all stages of nonprofit M&A, as well as leading merger exploration, due diligence, planning, and implementation phases as a business leader at Accenture M&A and Vanguard. 

While we do not provide legal or tax advice, we work closely with experienced attorneys and CPAs to ensure all angles are covered. We are happy to introduce you to some trusted resources in those areas of expertise.

Frequently Asked Questions About the Nonprofint Merger and Acquisition Exploration Stage

1. How do we know if a nonprofit merger is worth exploring?

If your organization faces leadership changes, funding challenges, or overlapping missions with others, a merger may be worth investigating.

2. Should we tell staff and donors during exploration?

This depends on the rationale for a merger, and the potential impact to the organization. In general, we do recommend communicating - in a managed way. That said, some mergers are better explored in confidentiality. Communicate early enough to build trust with senior leadership, but avoid premature announcements that cause uncertainty.

3. Can funders help during the exploration stage?

Some funders offer grants to support feasibility studies and initial planning. We are happy to introduce you to some.

4. How long should the exploration stage last?

Typically three to six months depending on the complexity and number of potential partners. As mentioned in a separate article, when there is no burning platform, exploration might also be a regular part of your planning process, and remain an evergreen activity. 

5. What happens after exploration?

If the decision is to proceed, due diligence follows to confirm the merger’s viability before formal agreements are made.