Mergers and Acquisitions

FAS 164 issued in April 2009, sets out the principles and requirements for how a not-for-profit entity should determine whether a combination is in fact a merger or an acquisition. Prior to the issuance of this standard FAS 141 provided guidance on combinations for Business entities (for-profit organizations). There are different motivators for acquiring or merging with another organizations. For-profit entities tend to be motivated by market share, generating revenues and maximizing net income. Nonprofit organizations may merge for different reasons, other than the effect on the bottom line. Enhanced program services and missional outreach while reducing overhead, play important factors in negotiating a combination.

Non-profit organizations exempt status requires continued operational compliance with its exemption. Whether the organization fulfills a religious, educational, scientific, cultural service to the community, any organizational changes have to be focused on continuing or expanding the operational exemption. Many non-profit combinations involve an inherent contribution between the organizations.

When two non-profit organizations are combined – is it a merger or an acquisition? After the combination, who controls the combined entity? Who is in control? A new governance team – the combination is recorded as a merger. If one entity cedes control to another entity – the combination is recorded as an acquisition.

How is the combination recorded? Read the rest of this entry »