Imagine a world where a nonprofit buys a for-profit company. While nonprofit expansion through strategic acquisition isn’t unheard of in the health care and senior living industries, it almost never happens in other nonprofit fields.
As a featured conversation on the Successful Nonprofits Podcast, we recently spoke with Dave Shaffer, CEO of Atlanta-based First Step Staffing about their acquisition of a for profit staffing firm.
First Step Staffing was started visionary Greg Block who sought to provide employment opportunities to homeless Atlanta residents. His vision was pure genius in its simplicity: build a staffing agency that provides homeless people temp-to-perm jobs and uses the financial surplus to provide additional client services that support employment and income generation.
Founded in 2006, First Step Staffing was already a successful nonprofit by any standard measure. The organization had enjoyed steady growth until it approached a $2 million annual budget, and the budget hovered near this mark for almost half a decade. Each year, hundreds of homeless men and women used First Step Staffing to obtain income, and this income enabled many to obtain housing. But growing beyond the $2 million mark was necessary to impact the lives of even more homeless Atlantans.
It became clear to the organization that expanding its impact required dramatic growth. They could have invested in a larger sales force to pursue additional employers, but this would have taken years to pay off and involved significantly more risk. Instead, they decided to buy a for-profit staffing company because such a purchase would immediately acquire new employer relationships, obtain the infrastructure necessary to support a larger organization, and offer employment to practically any homeless person in Atlanta who was ready to work.
The organization eventually purchased Atlanta’s fifth largest staffing firm, enabling it to grow from a $2 million organization to a $22 million organization. This dramatic expansion also achieved the vision of providing employment to any homeless Atlantan ready and able to work.
Of course, First Step Staffing conducted due diligence on the prospective purchase and ultimately the deal was brokered with a mix of philanthropic dollars, loans, and seller financing. One year after the acquisition, CEO Dave Shaffer reports that their financial projections are better than anticipated, and they don’t anticipate any issues in paying the loans.
After my conversation with First Step Staffing, I wondered if other nonprofits have purchased a for profit company, but couldn’t find many examples. In fact, a google search for “nonprofit buying a for profit company” identified only this Nonprofit Quarterly Article about senior living facilities, and articles about First Step Staffing in Forbes and the Atlanta Business Chronicle.
The fact that national and regional publications have picked up the First Step Staffing story clearly indicates this is an emerging opportunity for nonprofits to consider. Of course, nonprofits enjoy many competitive advantages when purchasing a for profit, including the ability to finance at least part of the purchase through major gifts and grants. This dramatically reduces the risk, while also providing immediate equity necessary for financing the remainder of the purchase.
Since this is not yet a common tool to support a nonprofit’s growth, I brainstormed a few possible purchases nonprofits might consider: