Strategic Divestiture: A Necessary Evolution for Nonprofit Human Services Providers
The January 2025 divestiture by BrightSpring of its legacy ResCare Community Living business unit to Sevita (formerly National Mentor) for $835 million may be a harbinger of things to come in the nonprofit human services space.
In the face of mounting financial pressure, nonprofit human services organizations—especially those with legacy residential service lines—are entering a critical juncture that demands rethinking long-held assumptions about growth, control, and sustainability. Amid declining or stagnant revenues, rising operating costs, and increasingly constrained access to capital, many organizations are finding that traditional approaches to expansion or diversification are no longer viable. In this evolving landscape, strategic divestiture—particularly of residential services—has emerged as a practical and sometimes necessary tool for preserving operational control and organizational viability.
The Economic Squeeze on Human Services Providers
The financial model that historically underpinned nonprofit human services is under duress. Government funding—often the primary revenue source—has failed to keep pace with inflation, labor costs, and regulatory complexity. At the same time, public demand for higher quality outcomes and personalized care continues to grow. Many providers are forced to deliver more with less, often subsidizing underfunded service lines with limited reserves or cross-subsidization from other programs.
Compounding the challenge is constrained access to capital. Traditional lenders view nonprofit human service agencies—particularly those with significant residential portfolios—as higher-risk borrowers due to thin margins, high fixed costs, and dependence on public contracts. This lack of access to debt or equity capital makes reinvestment in infrastructure, staffing, and innovation difficult at best.
Residential Services: A Costly Legacy
Residential programs—such as group homes for individuals with developmental disabilities or behavioral health challenges—represent one of the most resource-intensive and regulated components of many nonprofits’ service offerings. Though mission-aligned and historically central to many organizations’ identity, these services often generate persistent losses due to outdated reimbursement structures, high staff turnover, facility upkeep costs, liability insurance expense, and increasing scrutiny from regulators.
As state agencies push for community integration and more individualized models of care, the capital requirements to modernize residential offerings frequently outstrip available resources. Organizations must weigh the cost of sustaining these programs—both financial and reputational—against their ability to fulfill broader strategic goals.
Divestiture as a Tool for Control and Focus
In this context, divestiture can serve as a proactive, strategic decision rather than a last-resort retreat. By transferring residential service lines to organizations with greater scale or specialization in that domain, human services nonprofits can stabilize their balance sheets, reduce compliance risk, and focus their energy on programs with stronger mission alignment, growth potential, and higher margins.
Divesting does not imply failure; rather, it reflects an evolution in governance—one that prioritizes long-term impact over organizational breadth. Indeed, this strategy can offer an alternative to merger, allowing nonprofits to retain control over their future by freeing up leadership capacity, improving financial ratios, and enhancing access to capital for core initiatives.
Emerging Models of Networked Governance
As more nonprofits explore divestitures, a new paradigm of “networked governance” is emerging—where organizations intentionally narrow their operational footprint while collaborating within federated or partnership-based structures. In these models, divested assets are often transferred to trusted affiliate partners or mission-aligned consolidators, preserving continuity of care and values alignment while shifting operational responsibility.
This structure offers the benefits of consolidation—efficiencies, shared services, and strategic coherence—without requiring full mergers or loss of identity. For boards and executives, this means fewer program-level distractions and greater capacity to invest in innovation, advocacy, or upstream prevention efforts.
Strategic, Not Reactive
To be effective, divestiture planning must be strategic, not reactive. This means:
- Financial analysis to identify service lines with negative margins, excessive capital requirements, or disproportionate compliance risk;
- Mission alignment reviews to determine which programs are essential to the organization’s future impact;
- Partnership mapping to identify capable operators for potential divestiture or affiliation;
- Stakeholder engagement to ensure transparency with funders, families, and employees.
When executed thoughtfully, divestitures can be a means of strengthening, rather than weakening, a nonprofit’s position—enabling it to adapt to structural financial realities while preserving its long-term mission.
Conclusion
The era of unbounded programmatic expansion in nonprofit human services is over. Organizations must now confront a new operating reality shaped by cost pressures, stagnant public funding, and capital constraints. In this environment, strategic divestiture—particularly of capital-intensive, underfunded service lines like residential care—offers a powerful lever to retain control, focus resources, and invest in the future.
This shift does not signal retreat but renewal. As nonprofit leaders, embracing this strategy is not about doing less — it’s about doing what matters most, better.