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Dear President [your name here],
We know you’re busy, but could we have a word about a big-picture strategic issue that is looming ever larger? We’re talking about the accelerating trend of mergers (and, sadly, closures) in higher ed. And in particular, how and when you should consider the potential benefits of some form of partnership or merger of your institution with another. For many institutions, it comes down to how much “runway” you have—and most have less runway than may seem apparent.
Over the past eight years, about 50 mergers among private, four-year colleges have been announced. During that same period, more than 75 institutions have closed, by our calculations. Given the trends leading to the industry’s current challenges—demographics, escalating cost, daunting regulations and a loss of faith in the value of higher education—institutions should more widely consider mergers or other partnerships as a viable option.
By this time, you will have seen a number of articles about mergers and consolidation among colleges and universities. You may have attended a presentation at a conference or a webinar. Maybe one or two of your colleagues have called to worry aloud that it might be time for them to make some big changes at their campuses.
But what should you and your institution be doing right now about the merger trend? Here are five ways you should be thinking about mergers as well as some practical advice on how you can improve your ability to successfully navigate this rapidly changing environment.
- Overcome your objections to the “jargon” of M&A. Many people find it unbecoming to use “business” language around institutions of higher learning, but let’s acknowledge that you are, in fact, the CEO of a business, and one that is becoming ever more difficult to run. We hear many objections to treating a college or university like a business to be analyzed and maybe bought or sold. Terms like “mergers and acquisitions” (or worse, its more familiar “M&A”), “transaction,” “acquisition” or “definitive agreement” do not roll lightly off the tongue.
Reluctance to think about these issues is perfectly understandable. Most likely, they are not the particular concerns that attracted you to become a president. In addition to feeling slightly unsavory, engaging with these terms and concepts may feel a little intimidating. Chances are that while you are an expert in your field, merging is not your field.
- Educate yourself and your stakeholders. Once you’ve conquered the jargon, improve your understanding of what’s going on out there and what realistic options may be available to you. Ask yourself:
- What are the major trends, and where are there potential opportunities?
- What are other, similar institutions doing? What seems to work and what doesn’t?
- What are the alternatives to a merger? In which instances do cost-cutting, tuition resets and back-office consortia work?
- What does a merger really entail? Is one as hard to pull off as it seems?
- What are the benefits? What are the downsides? What are the potholes to avoid?
After you are up to speed, bring your cabinet and board members along. Retreats and discussion sessions are often the best way to accomplish this. Bringing in outside experts can help with individuals’ knowledge base and the discussion process, as well as simply provide more people to look into these matters.
At this point, you are learning, not making decisions. Some institutions feel a temptation to begin bilateral discussions with one or a few likely partners to “see if there’s anything out there.” Others produce a list of “non-negotiables”—for example, that no staff reductions or changes in courses can occur. Our advice is to hold off on such actions until you have a clear idea of what you are looking for and are fully prepared.
- Take an honest look at your situation. Now comes the hard part. Undertaking a rigorous process of learning how mergers might be relevant to your institution is beneficial. But the real value is in applying this knowledge to your own situation.
Look at the demographics of your institution’s region, the relevance and quality of your institution’s programs, its economic impact on the community and, of course, its financial situation. Identify any restrictions or complications on its endowment and real estate (including zoning). Quantify any deferred capital needs. If nothing were to change, consider the moves that you would need to make over the next three to five years.
How does the situation at your college or university really look? What are challenges and demands that may stymie your institution’s long-term success? Declining enrollment, drawdowns on endowment, aging facilities, debt service, tenure obligations and more seem to plague many institutions. What particular challenges does yours confront?
And, just as important, how much runway do you have? The inexperience of most institutions in completing mergers, along with increasingly burdensome regulatory processes, mean that it would likely take two years from the time you decide to explore a merger or partnership until completion. Do you have that much time?
- Revisit your purpose. At its essence, is it to keep things as similar as possible in the future? Conserve tradition? Remain independent? Preserve the ol’ [insert school colors here]?
Among all of your competing priorities, what is the essence of your mission? An often-overlooked perspective is that a merger can be about more than “saving” an institution; it can also lead to more successfully fulfilling the mission than might be accomplished otherwise.
In what can sometimes feel like a side note, many of you lead (along with the head of the local hospital) one of the key economic and social engines of your neighborhood, city or town, or region. How can you best ensure the continuing health of your broader community?
- Take action. Once you have gotten used to the idea of mergers, educated your administrative team and board, viewed your institution’s situation with clear eyes, and focused on your purpose, it is time to act.
Line up your situation and your purpose next to each other. For many institutions, that gap is wider than it was in the past and is likely to grow in the near future. If that’s the case with your college or university, it’s time to look into the possibility of affiliating, partnering, collaborating—even merging—with another institution.
This doesn’t mean that you should immediately post a “For Merge” sign on the campus. But it does mean that you should at least begin the journey of discovery and deliberation about the potential benefits of combining with another institution. Even if you do not end up with a new partnership of any sort, you and your team will have learned a great deal about one of the major phenomena in higher ed today.
When should you do all this?
You won’t be surprised to hear that our answer is “immediately.” Increasing regulatory scrutiny, combined with the relative inexperience of colleges and universities in exploring mergers, mean that the lead time from first thought to closing is now around two years. Even fiscally strong institutions should be up to speed on these topics as opportunities increase across the country.
That pesky question again is: Do you have that much runway?
Respectfully yours,
Paul, Barry and Joe
