Economic Development Now

This article aims to serve as a guide for higher education institutions considering mergers and acquisitions (M&A) as a strategy without assuming it is the best strategy for every institution. With the strain of the COVID-19 pandemic, what will happen to the students and talent at colleges and universities that are on the brink of closure? Will we see larger institutions conducting mergers and acquisitions to avoid bankruptcy?

What does M&A mean for higher education?

With the closure of many higher education institutions during the pandemic, colleges and universities are facing  uncertainty with regard to securing current and future students, shifts in course programming, and mounting financial pressures. One strategy that may help these institutions is mergers and acquisitions. A merger is a “combination of two firms, which subsequently form a new legal entity under the banner of one corporate name” and an acquisition is when “one company purchases another outright” (Investopedia). However, similar to when a higher education institution decides to create a satellite campus, M&A carries a stigma and concerns about preserving the institution's vision, mission, and programs. A well-thought-out M&A strategy can address these concerns.

Best practices and outcomes

Case Study 1: Berklee College of Music and the Boston Conservatory

Berklee College of Music and the Boston Conservatory did a merger of their programs in 2016. The merger enabled them to be stronger together through their course programming. Their programs were intertwined and enabled students to take courses at either institution. This was the compelling factor driving the merger. Berklee didn’t find it feasible to create its own conservatory. For the Boston Conservatory, the merger gave them open access to a larger institution and the use of its studios. The merger also enabled Berklee to offer higher compensation and longer-term contracts to Boston Conservatory faculty members.

This merger relied on a year of public vetting to gain feedback and ideas. The takeaway from this merger is to 1) build relationships in your community with multiple stakeholders and 2) develop educational committees in your community to discuss the benefits and opportunities of mergers.

When considering mergers it is crucial to ask these questions:  1) Who do we want to be? 2) Where do we want to go with this M&A?

Case Study 2: Upstate New York

This proposed merger was between Hilbert College and St.  Bonaventure University who wanted to form a strategic alliance in order to address a drop in regional enrolment and net tuition revenue. The leaders of both institutions were of Roman Catholic background and knew each other through membership in a group of Roman Catholic colleges. However, about a year and a half later they decided against a merger because they were unable to agree on a governance structure.

The takeaways from this failed M&A case study are: 1) focus on embracing the strategic visions of both institutions; 2) carry out a strategic visioning exercise for both institutions (this can lead to an incremental plan, including key initiatives to undertake prior to  announcing an M&A); and 3) develop an assessment of  opportunities while considering the question, “What programs can be merged and acquired from either institution to achieve our vision?” (reviewing this question annually can enable institutions to think strategically and consider exploratory opportunities)

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SWOT analysis of M&A in higher education

Through the review of several higher education M&As, this SWOT analysis provides a holistic view of the transaction and what it could mean for your community and institution.

Strengths

• Access to new students—M&A can provide institutions with access to a different talent pool that would not have previously considered the institution

• Technology platforms that are more scalable, allowing students to gain access to software and skill sets that weren’t offered before 

• Collaboration among administrators that can result in course offerings that would not be possible otherwise

• Lower infrastructure and service expenses

• Improvement in infrastructure, R&D, management, and knowledge base

Weaknesses

• Higher tuition

• Incompatibility in management style, culture, and/or programming 

• Integration issues with students, faculty, and/or administration

Opportunities

• Support communities that are underserved in higher education programming; enable access for students in low- to middle-income communities

• Access to new international markets for student recruitment  

• Tax benefits and incentives  

• Expansion opportunities

Threats

• Every M&A transaction will have a different result and outcome depending on the type of institution and community they are located in. There isn’t a one-size-fits-all strategy for M&A.

• More regulatory interference 

• Retention of students and faculty

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Further research

Higher education institutions play an important role in any community they reside in. They are important anchor institutions, but they sometimes struggle to remain anchored in their communities to assist with economic development. With the possibility of more M&A transactions in the coming years in the aftermath of the pandemic, there are three areas to consider:  

Economic developers and workforce development

✔ How will higher education institutions seeking M&A as a strategy consider workforce development?  

✔ How can economic developers assist with these transactions to ensure workforce development is a priority?  

✔ Should towns and municipalities consider developing an education department to address higher education institutions?

Diversity, equity, and inclusion

✔ Are higher education M&A transactions occurring in majority-BIPOC communities?

✔ How can M&A transactions support HBCUs?

✔ How can economic developers successfully apply M&A transactions to prevent the closure of  HBCUs and institutions where the majority of the student population is BIPOC?

Urban vs. rural

✔ Are higher education institutions considering the closure of satellite and branch campuses located in rural and/or BIPOC communities over their main metropolitan campuses? If so, what actions are required to prevent such closures?

✔ What is the economic impact and aftermath of M&A transactions in rural versus urban communities?