The Consolidation Wave: Strategic or Desperate?

The nonprofit education sector is facing a reckoning.

After years of rapid growth fueled by pandemic-era funding and record philanthropic giving, we’re now seeing a fundamental market correction. The expiration of ESSER funds has left districts and nonprofits that built programming around federal aid scrambling for sustainability. Meanwhile, with philanthropic giving down and the number of individual donors continuing its steady decline since, organizations that expanded during the boom years are now struggling to maintain those investments.

This perfect storm is driving consolidation in three distinct ways. First, we’re seeing a culling, that is, nonprofits shutting down as financial realities catch up. A 2024 sector survey found that 68% of nonprofits planned to cut programs and services in the next one to two years.

Second, strategic mergers are accelerating as organizations recognize efficiencies from combining operations. As an example, last year Relay GSE and Teaching Lab announced plans to merge. The integration reflects a proactive approach to strengthening capacity rather than a distress-driven response, demonstrating how strategic combinations can expand reach while reducing administrative redundancy.

Third, and perhaps most intriguing, we’re witnessing conversions to for-profit models. Private equity firms are increasingly viewing nonprofits as an under-capitalized asset class, following the path blazed by ACT’s 2024 acquisition by Nexus Capital Management and NWEA’s 2023 acquisition by Houghton Mifflin Harcourt. The playbook is straightforward: acquire a nonprofit generating significant earned revenue at an attractive multiple, convert it to for-profit status, and use it as a platform for building a larger enterprise.

The consolidation ahead isn’t just market-driven attrition. Foundations are signaling their intention to make “fewer, larger grants” as they respond to market pressures, tacitly encouraging this trend.

Over the past three years, we’ve had a front-row seat to this change. We’ve worked with nonprofits on both M&A and post-merger integration, helped philanthropic foundations and their grantees develop sustainable business models, and conducted due diligence for investors exploring opportunities in this space. We’re not seeing this trend accelerate.

The question isn’t whether consolidation will happen, but whether it will be strategic and mission-preserving or simply reactive and desperate. We’re helping philanthropists, operators, and investors ensure it’s the former.

If you’re facing a similar questions, we’d love to hear from you.