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What Should Guide the Decision for Institutional Merger or Acquisition in Higher Education? Student Success and Opportunity
By Ricardo Azziz and James E. Samels
As would be predicted by a landscape characterized by declining enrollment, negative demographics, excess capacity, and increasing fiscal pressures, all exacerbated by a pandemic of historic proportions, there has been much in higher education news regarding institutional mergers. From the consolidation efforts at PASSHE to the mergers of Willamette-Pacific Northwest College of Art, Sierra Nevada-University of Nevada at Reno, Delaware State University-Wesley College, Saint Joseph’s University-the University of the Sciences, Pine Manor-Boston College, and many others, it has been an active merger and acquisition scene in the industry. And the occasional pushback, of course. This trend has been long predicted, although it took a massive pandemic to push it towards reality. In the seminal work Merging Colleges for Mutual Growtha (Johns Hopkins University Press, 2000) we intuited the ‘merger mania’ in higher learning 25 years ahead of our time. What we could not foresee is the demographic tsunami and enrollment hypermeltdown with too many colleges and too few students. Hence, the cataclysmic higher ed megatrend – too few students at the upstream (K-12) for too many downstream higher ed slots – now burdening the preponderance of colleges and universities.
In Strategic Mergers in Higher Educationb (Johns Hopkins University Press, 2019) we stressed that governing boards and executives of all institutions of higher education, large and small in enrollment, strong or weak financially, should always include environmental scanning for and consideration of potential merger, acquisition, and partnership opportunities in their annual strategic planning reviews. The ability to see and vet these transformative opportunities comes from continued exposure to their potential, including upsides and costs. While many of these proposals begin in the boardroom, they are often missed simply because there is no regular effort nor comfort in their consideration. As every wise buyer is aware, the more you know about a market, the better prepared you will be to see and follow through with an opportunity when it presents. The same applies to higher education governing boards and executives, who often do not feel comfortable mentioning, much less considering, these transformative opportunities.
But even if such a regular strategic assessment is made, it is still difficult to determine when an opportunity, especially a merger, should be considered. In fact, this is one of the most frequent questions we get asked. As Joseph O’Neill and Samuel Barnett recount in their 1980 book Colleges and Corporate Change: Merger, Bankruptcy, and Closurec, the story of a trustee who uttered in frustration “This college has been in financial difficulty for 125 years. How do I know that God won’t provide and see it through yet another year?”, it is often unclear when to pull the trigger.
However, we argue that when to make these decisions is not as complicated as it may seem if we follow one cardinal principle in the decision-making process: it is all about the students. And consequently, it should always be about student success and opportunity.
While institutional mergers have been touted as an effective means of spreading costs and reducing overhead – which they are – sole financial valuation will be insufficient to inform when such a transformative opportunity should be undertaken. For example, institutional survival, for its own sake, without considering the direct impact on students is misguided. In some cases, an institution may find ways to survive organizationally yet become what we term a ‘zombie college’, never being able to fully implement its commitment to a high quality and productive learning experience.
Well-planned mergers and acquisitions (other than simple real estate deals) will provide value to students far beyond any financial savings identified. In fact, a merger that is able to generate a richer, more diverse, and stronger student experience, even if at the same overall cost, should be considered a winner. And many mergers in higher education have done exactly that.
In the merger that one of us managed during the first wave of consolidations carried out by the University System of Georgia (USG), a dramatic increase in student success and experience ensued in the first three years post-merger. During this time, we invested heavily in improving student success, resulting in a 7% increase in freshman retention, a 278% increase in freshman progression, and a 36% increase in 6-year graduation rates. We also dramatically enhanced academic and career advising, and expanded academic enrichment, student life, and campus engagement offerings. These advances were the result of three mechanisms: funds saved through the merger were captured and redirected to these programs; the opportunities for enriching the student experience increased as a result of the larger size and greater diversity of the enterprise; and campus energy and focus increased as a result of the transformative effects of the merger.
Russelld, studying student outcomes in the initial wave of mergers carried out by USG, also noted significant increases in retention and four-year graduation rates for students pursuing Bachelor's degrees at those institutions that merged. She estimated that the gains for students did not come at the cost of significant increases in total spending, but rather increased spending on academic support made possible by cuts in spending in other student and administrative services.
A well-considered merger will also be of value to alumni, in essence the institution’s past students, despite possible initial angst by this community. The value of a diploma garnered by alumni, particularly in the setting of a growing need for life-long learning, greatly depends on the current strength and quality of the degree-awarding institution. Thus, the growth of an institution in size and quality will benefit past students. Graduates of merged institutions should be offered the opportunity to obtain a copy of their diploma in the new institution’s name, a request that we often see increases within the first few years of the merger. Providing the consolidation is carried out with respect and consideration for the culture, students, faculty, and alumni of the merged institution is essential.
Unfortunately, some mergers seem to be pursued more by a desire to grow and acquire, with limited attention to how this will directly benefit the students of the acquiring or acquiree institution. In other cases, we have seen too many such mergers be pursued too late… resulting in an institution that is weak, with limited political, enrollment, brand, or fiscal resources. Delayed efforts to consider or pursue mergers often result in institutional closures that clearly do not benefit any student, whether past, present, or future. Or, alternatively, waiting too long may result in a suboptimal merger, with limited attention paid to the needs of the current and past students of the weaker organization.
So, the question that governing boards, policymakers, and chief executives should always ask as they consider potential merger and acquisition opportunities is “Will this directly improve the students’ experience and success?”. If the answer is yes, then it’s an opportunity that should be assessed, albeit carefully. If the answer is, “Maybe” or “Not sure”, then it’s a venture that likely should not be undertaken.
Ricardo Azziz is research professor in the School of Public Health at the University at Albany, SUNY and Professor, Schools of Public Health and Medicine, University of Alabama at Birmingham; Principal of Tellurian Global, LLC; and co-author of Strategic Mergers in Higher Education (Johns Hopkins University Press, 2019).
James E. Samels is President and CEO of The Education Alliance; senior partner in the law firm of Samels Associates; and co-author of Merging Colleges for Mutual Growth (Johns Hopkins University Press, 2000) and Consolidating Colleges and Merging Universities: New Strategies for Higher Education Leaders (Johns Hopkins University Press, 2017).
References
aMartin J, Samels JE. Merging Colleges for Mutual Growth. Johns Hopkins University Press, 2000.
bAzziz R, Hentschke GC, Jacobs BC, Jacobs LA. Strategic Mergers in Higher Education. Johns Hopkins University Press, 2019.
cO’Neill JP, Barnett S. Closing a College: Trustee Decisions and Administrative Policies. In Colleges and Corporate Change: Merger, Bankruptcy, and Closure, ed. Joseph P. O’Neill and Samuel Barnett. Conference-University Press, 1980.
dRussell L. Better outcomes without increased costs? Effects of Georgia’s University System consolidations. Economics of Education Review. 2019:68:122-135.
As would be predicted by a landscape characterized by declining enrollment, negative demographics, excess capacity, and increasing fiscal pressures, all exacerbated by a pandemic of historic proportions, there has been much in higher education news regarding institutional mergers. From the consolidation efforts at PASSHE to the mergers of Willamette-Pacific Northwest College of Art, Sierra Nevada-University of Nevada at Reno, Delaware State University-Wesley College, Saint Joseph’s University-the University of the Sciences, Pine Manor-Boston College, and many others, it has been an active merger and acquisition scene in the industry. And the occasional pushback, of course. This trend has been long predicted, although it took a massive pandemic to push it towards reality. In the seminal work Merging Colleges for Mutual Growtha (Johns Hopkins University Press, 2000) we intuited the ‘merger mania’ in higher learning 25 years ahead of our time. What we could not foresee is the demographic tsunami and enrollment hypermeltdown with too many colleges and too few students. Hence, the cataclysmic higher ed megatrend – too few students at the upstream (K-12) for too many downstream higher ed slots – now burdening the preponderance of colleges and universities.
In Strategic Mergers in Higher Educationb (Johns Hopkins University Press, 2019) we stressed that governing boards and executives of all institutions of higher education, large and small in enrollment, strong or weak financially, should always include environmental scanning for and consideration of potential merger, acquisition, and partnership opportunities in their annual strategic planning reviews. The ability to see and vet these transformative opportunities comes from continued exposure to their potential, including upsides and costs. While many of these proposals begin in the boardroom, they are often missed simply because there is no regular effort nor comfort in their consideration. As every wise buyer is aware, the more you know about a market, the better prepared you will be to see and follow through with an opportunity when it presents. The same applies to higher education governing boards and executives, who often do not feel comfortable mentioning, much less considering, these transformative opportunities.
But even if such a regular strategic assessment is made, it is still difficult to determine when an opportunity, especially a merger, should be considered. In fact, this is one of the most frequent questions we get asked. As Joseph O’Neill and Samuel Barnett recount in their 1980 book Colleges and Corporate Change: Merger, Bankruptcy, and Closurec, the story of a trustee who uttered in frustration “This college has been in financial difficulty for 125 years. How do I know that God won’t provide and see it through yet another year?”, it is often unclear when to pull the trigger.
However, we argue that when to make these decisions is not as complicated as it may seem if we follow one cardinal principle in the decision-making process: it is all about the students. And consequently, it should always be about student success and opportunity.
While institutional mergers have been touted as an effective means of spreading costs and reducing overhead – which they are – sole financial valuation will be insufficient to inform when such a transformative opportunity should be undertaken. For example, institutional survival, for its own sake, without considering the direct impact on students is misguided. In some cases, an institution may find ways to survive organizationally yet become what we term a ‘zombie college’, never being able to fully implement its commitment to a high quality and productive learning experience.
Well-planned mergers and acquisitions (other than simple real estate deals) will provide value to students far beyond any financial savings identified. In fact, a merger that is able to generate a richer, more diverse, and stronger student experience, even if at the same overall cost, should be considered a winner. And many mergers in higher education have done exactly that.
In the merger that one of us managed during the first wave of consolidations carried out by the University System of Georgia (USG), a dramatic increase in student success and experience ensued in the first three years post-merger. During this time, we invested heavily in improving student success, resulting in a 7% increase in freshman retention, a 278% increase in freshman progression, and a 36% increase in 6-year graduation rates. We also dramatically enhanced academic and career advising, and expanded academic enrichment, student life, and campus engagement offerings. These advances were the result of three mechanisms: funds saved through the merger were captured and redirected to these programs; the opportunities for enriching the student experience increased as a result of the larger size and greater diversity of the enterprise; and campus energy and focus increased as a result of the transformative effects of the merger.
Russelld, studying student outcomes in the initial wave of mergers carried out by USG, also noted significant increases in retention and four-year graduation rates for students pursuing Bachelor's degrees at those institutions that merged. She estimated that the gains for students did not come at the cost of significant increases in total spending, but rather increased spending on academic support made possible by cuts in spending in other student and administrative services.
A well-considered merger will also be of value to alumni, in essence the institution’s past students, despite possible initial angst by this community. The value of a diploma garnered by alumni, particularly in the setting of a growing need for life-long learning, greatly depends on the current strength and quality of the degree-awarding institution. Thus, the growth of an institution in size and quality will benefit past students. Graduates of merged institutions should be offered the opportunity to obtain a copy of their diploma in the new institution’s name, a request that we often see increases within the first few years of the merger. Providing the consolidation is carried out with respect and consideration for the culture, students, faculty, and alumni of the merged institution is essential.
Unfortunately, some mergers seem to be pursued more by a desire to grow and acquire, with limited attention to how this will directly benefit the students of the acquiring or acquiree institution. In other cases, we have seen too many such mergers be pursued too late… resulting in an institution that is weak, with limited political, enrollment, brand, or fiscal resources. Delayed efforts to consider or pursue mergers often result in institutional closures that clearly do not benefit any student, whether past, present, or future. Or, alternatively, waiting too long may result in a suboptimal merger, with limited attention paid to the needs of the current and past students of the weaker organization.
So, the question that governing boards, policymakers, and chief executives should always ask as they consider potential merger and acquisition opportunities is “Will this directly improve the students’ experience and success?”. If the answer is yes, then it’s an opportunity that should be assessed, albeit carefully. If the answer is, “Maybe” or “Not sure”, then it’s a venture that likely should not be undertaken.
Ricardo Azziz is research professor in the School of Public Health at the University at Albany, SUNY and Professor, Schools of Public Health and Medicine, University of Alabama at Birmingham; Principal of Tellurian Global, LLC; and co-author of Strategic Mergers in Higher Education (Johns Hopkins University Press, 2019).
James E. Samels is President and CEO of The Education Alliance; senior partner in the law firm of Samels Associates; and co-author of Merging Colleges for Mutual Growth (Johns Hopkins University Press, 2000) and Consolidating Colleges and Merging Universities: New Strategies for Higher Education Leaders (Johns Hopkins University Press, 2017).
References
aMartin J, Samels JE. Merging Colleges for Mutual Growth. Johns Hopkins University Press, 2000.
bAzziz R, Hentschke GC, Jacobs BC, Jacobs LA. Strategic Mergers in Higher Education. Johns Hopkins University Press, 2019.
cO’Neill JP, Barnett S. Closing a College: Trustee Decisions and Administrative Policies. In Colleges and Corporate Change: Merger, Bankruptcy, and Closure, ed. Joseph P. O’Neill and Samuel Barnett. Conference-University Press, 1980.
dRussell L. Better outcomes without increased costs? Effects of Georgia’s University System consolidations. Economics of Education Review. 2019:68:122-135.
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