Getting M&A Right in the Not-for-Profit Sector

Australia’s not-for-profit (NFP) sector is a vital part of the national economy, comprising over 61,000 organizations, generating $226 billion in revenue, and employing approximately 1.5 million people. Despite its size and impact, the sector is highly fragmented, with most organizations operating at a local level and no single entity controlling more than 2% of the market. This fragmentation is rooted in the sector’s history and mission, with many NFPs established by community groups, families, or religious organizations to serve specific local needs.

In recent years, NFPs have faced mounting financial pressures. The proportion of organizations reporting financial losses has risen, particularly in the health and aged care sub-sectors. Sia identifies five key drivers of this financial stress: rising input costs, reduced philanthropy due to cost-of-living increases, tighter regulatory requirements, fixed pricing models that limit revenue flexibility, and increased competition from for-profit providers. As a result, financial sustainability has become a growing priority for NFP boards and executives.

To address these challenges, many NFPs are exploring mergers and acquisitions (M&A) as a strategic option. M&A can help organizations achieve operational efficiencies, strengthen balance sheets, and access new revenue streams. For smaller NFPs, merging with a larger entity can provide much-needed financial stability and insulation, while larger organizations can benefit from expanded service offerings and greater market reach.

While overall M&A activity in Australia has been subdued in recent years, the unique characteristics of the NFP sector—particularly in healthcare—make it ripe for consolidation. Financial sustainability is the primary driver for M&A, but other motivations include broadening service offerings, meeting regulatory requirements, and achieving greater scale. However, despite these drivers, only about a quarter of NFPs are currently considering or undertaking a merger, reflecting the sector’s cautious approach.

Sia’s research, including interviews with NFP leaders, highlights several “deal archetypes” in NFP M&A: financial necessity (e.g., impending insolvency), efficiency gains, portfolio expansion, regulatory compliance, and diversification. However, there are also valid reasons for NFPs to remain independent, such as preserving unique organizational cultures, maintaining local focus, and avoiding the resource strain of complex M&A processes.

Unique Challenges and Keys to Success

M&A in the NFP sector differs significantly from the corporate world. Deals are typically less formal, more collaborative, and often executed with minimal or no financial compensation. Key challenges include aligning organizational cultures, managing power dynamics, and integrating systems and processes. Sia identifies six critical success factors for NFP mergers: a staged deal process, flexible support, a custom engagement model, a value-based approach, post-deal integration support, and clear communication of dealbreakers and guiding principles.

With deep expertise in the healthcare and not-for-profit sectors, Sia offers tailored support throughout the M&A journey—from opportunity assessment and business case development to deal execution and post-merger integration. Our frameworks and methodologies are designed to address the sector’s unique challenges and ensure successful outcomes.