Are Mergers and Acquisitions the Wave of the Future in Higher Education?

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The higher education community is noticing with increasing interest and some alarm the growing number of mergers and acquisitions that occurred in American higher education in 2018. Are there lessons to be learned from these events?

Here are some preliminary insights:

  • We should not assume that what appears to be an uptick in mergers and acquisitions is the beginning of an imminent collapse of the American higher education system. Mergers and acquisitions have always been a part of the changing higher education landscape. In the late 19thcentury, there was a wave of such closures. Indeed, even the University of Chicago and Northwestern University actively considered merging at the height of the Great Depression. There have been about 11 such events nationally each year.
  • Not all mergers and acquisitions are negative. Colleges and universities can merge or be acquired for reasons that make sense and continue to serve the public good. In some cases, the result can be the development of a stronger, more contemporary program, thereby enhancing the value of alumni degrees at the merged or acquired institutions. In other cases, the merger may produce the cash reserves, marketing strategy, and/or revenue necessary to sustain an enterprise. Of course, in a few, it may simply be time to wind down programs that cannot be attractively marketed or priced to new generations of students.
  • Recent mergers indicate that colleges and universities need to think much more directly about their sustainability over the long term. They need new products — like catastrophe insurance — that can be purchased or bundled with their other insurance lines to ensure that they remain in control of their destinies. The institutions that get into the most trouble fail to link their programs, people, and facilities to their finances — often with disastrous results. The recent efforts by the University of Illinois to insure against the loss of Chinese students http://bit.ly/2SuuXfdoffers a good example. These new products must give colleges and universities at the precipice of change some runway to move toward a better outcome.
  • Colleges — that is, senior leadership and trustees — need a plan. The story of Mt. Ida College is a telling lesson of how not to move forward. Colleges seldom close because of one precipitous event but rather slow atrophy. Often, campus incrementalism is the biggest foe to adaptability. But as conditions worsen, colleges need to plan out various scenarios, always keeping the needs of current students first. Mt. Ida was a planning and public relations nightmare in part because the outcome pushed ahead of the planning process. It is likely that Mt. Ida’s closure will become one of the textbook cases of how not to close a college.
  • Colleges should recognize and understand the value of their assets. Wheelock College’s merger into Boston University is a much rosier picture of why some colleges choose to be folded into existing programs at a larger university. Known for teacher preparatory programs, many of Wheelock’s students and alumni saw value in a merger into the comparable BU program. But what separated the Wheelock story from others is the value of the real estate in Boston’s hyper-intense commercial real estate market. The marriage of programs and real estate acquisition by Boston University simply made a good deal of common sense.
  • If higher education officials run institutions that are highly tuition-dependent, then they must begin to look for solutions that both lessen the dependence on tuition and locate and utilize new financial products that provide better access for students. It may be that colleges come to recognize that they can no longer finance their existing physical plant footprint. The reality of many institutions openly calls into question whether they should use their existing debt capacity to finance non-academic facilities.
Is it time to re-imagine how revenue and assets are deployed to make colleges and universities more sustainable places?

If a college can outsource its maintenance, bookstore, and food service — as many already do — is it necessary to own and build leasable buildings that still permit the student life program to go forward while maintaining ownership of the land beneath the leased residence hall?

  • Further, colleges must again find new ways to create the financial vehicles to increase access for students. One way to do this is to rethink the variety and type of student aid programs that are available. It is likely that the government will not initiate large-scale new student aid programs without significant new revenue, typically from tax increases. Absent government involvement, the market must come forward with new student aid programs — the growing interest in income share agreements comes to mind — that meet targeted weaknesses in the current financial aid packages. No single program will be a panacea, but some need to be looked at closely — and soon.

The sky is not falling around higher education. Mergers and acquisitions — some of them timely and appropriate — will continue and likely increase as they did in late 19th century America.

But the broader question of how to be a sustainable college over the long term will depend on how nimble, adaptable, and creative America’s colleges and universities will be to rise to the challenges that face them.