Collaboration Case Study Acquisition of Failing Organization

Sometimes collaborations do not go smoothly. This post summarizes some of the pitfalls and lessons learned when a nonprofit tried to acquire a struggling nonprofit for all the right reasons, but the effort ended up being more trouble than it was worth.

Successes.

  1. Moving acquired organization staff on-site quickly helped with staff integration.
  2. Transparent and sensitive dealings with acquired staff, even through layoffs and major program changes, developed mutual respect.

Disappointments.

  1. Acquisition went forward despite late and inaccurate financial reports and other requested documents.
  2. Perceived rush by board and executive director and sensitivity to cost precluded detailed due diligence.
  3. Acquisition went forward in spite of stated donor, management and board unease.
  4. Acquisition contract was back-dated when signed.
  5. Due to multiple problems and irregularities, legal costs much higher than planned.

Lessons Learned.

  1. Financially and operationally, the situation was worse than feared.
  2. Executive Director was less than truthful.
  3. Board had little control or knowledge of Executive Director actions.
  4. Funds were inappropriately expended after Letter of Intent signed.

Documents were consistently late and signed late got in the way of appropriate due diligence transition was not executed cleanly.

  1. Bank accounts and line of credit not transferred on time inappropriate expenditures.
  2. Deed of property not executed properly for transfer.
  3. Organization legal representation was provided by one of their board members which complicated matters.
  4. Organization lost its major sources of funding after letter of intent but before contract signing.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form

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