Make mergers of colleges strategic and mainstream, not desperate and a last resort

By:

Feb 27, 2020

According to a new book, Strategic Mergers in Higher Education, it’s well past time for college leaders to view mergers as “a tactic to be considered proactively, deliberatively, and without fear.”

The book’s authors, Ricardo Azziz, Guilbert C. Hentschke, Lloyd A. Jacobs, and Bonita C. Jacobs, couldn’t be more right.

All too often, boards and leaders avoid considering the strategic potential of mergers because they view merging as a failure of leadership—the disappearance of an institution, perhaps, and its legacy. Although the authors suggest in an interview with Inside Higher Ed that that sense of failure is rooted in the fact that for many institutions, a merger comes about as a last-ditch action when all else has failed to save the institution, it need not be this way.

Schools could instead view mergers as a strategic opportunity to create a more effective, lasting institution capable of better serving students and the community.

Although I’m on record with Clayton Christensen as saying that at least 25% of institutions will close, merge, or declare financial exigency in the next couple decades, despite the recent precipitous number of college closures and mergers in the northeast, we are still in the early years of this consolidation. The closure of 0.2% of public institutions, 1.7% of private institutions, and 11% of for-profit schools from 2016–­2018 represents just the beginning.

Research at Entangled Solutions leads me to believe that because we’re still in the early years of this consolidation, there is an opportunity for the sorts of acquisitions that the authors of Strategic Mergers in Higher Education believe can and should happen. The best schools will be bought by leading healthy institutions—not sold in what is often a last-ditch fire sale.

Right now there are a limited number of valuable institutions that could be bought, but by 2025—just before the demographic cliff in higher education about which Nathan Grawe has written—proactive institutions will have acquired most of them. In other words, there is a five-year window for the sorts of mergers for which the authors argue.

As Nick Hammerschlag, the president of the Entangled Group has said, “Significant institutional stress [across the landscape] is creating open and willing sellers, while the emergence of mega-universities has created a buyer class.”

Why would institutions proactively seek to buy schools that might not be in danger in the next two years, but could be challenged over five or six? Our research suggests that the reasons are twofold.

First, mergers represent the opportunity for further economies of scale. Economies of scale used to be anathema to higher education, but increasingly there are more mega-universities. Whereas in 2006–07 there were only 2 institutions serving over 60,000 students—and their average enrollment was 61,544 students—just 10 years later 10 institutions boasted enrollments of more than 60,000 students with an average enrollment of 81,564. Those trends have only accelerated.

Second, mergers create the opportunity for schools to fill in key gaps, including a dearth of online offerings and students, specific programs in in-demand fields, and holes in student- and employer-rich regions—real estate, in other words—outside a school’s main campus that cause them to struggle to attract students in those areas. Schools that grow into other geographies, for example, can provide access to new student populations and demographics, accreditations, local financial aid, and regional networks of alumni and employers.

For sellers, the big opportunity to sell before a crisis hits is to find a great home for an institution inside a school primed to serve the students, alumni, and faculty well—before disaster hits and they can’t necessarily pick a strategic landing ground. In other words, if a school sees that the road ahead could be challenging, the ability to preserve the institution’s mission and strengthen its ability to deliver on that mission is one to be seized before it’s too late.

To do that, schools would do well to consider the advice that Azziz, Hentschke, Lloyd A. Jacobs and Bonita C. Jacobs offer in their new book.

Michael is a co-founder and distinguished fellow at the Clayton Christensen Institute. He currently works as a principal consultant for Entangled Solutions.