Stronger Together
In the new normal, mergers and acquisitions are reshaping higher education
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Do the words “merger and acquisition” make you shudder? Except among business school faculty, talk of mergers, acquisitions, affiliations, and closures generally creates unease and discomfort in higher education circles. My advice: get comfortable with it. This is our sector’s new reality. In spring 2024, Higher Ed Dive reported that colleges and universities were closing at a pace of one a week. That’s almost twice as many as in 2023, according to the Hechinger Report.
Declining enrollment rates and increased costs account for many of the closures. In 2018, economist Nathan Grawe predicted that higher education enrollment would fall by 15 percent between 2025 and 2029, with a continuing though less dramatic decline in subsequent years. He coined the term “demographic cliff.” Essentially, his message was that higher education can’t bring to life the babies who weren’t conceived two decades ago. Between 2007 and 2020, birth rates in the United States declined by 20 percent. Older millennials have opted to delay having, have fewer, or skip having children altogether. Younger millennials are following suit. Basically, fewer babies mean fewer college students.
In addition, the pandemic further weakened institutions already struggling with declining enrollment. Although COVID-era federal funding put off the inevitable for some institutions, the question of long-term viability has now resurfaced.
Mergers and acquisitions can help address funding and enrollment troubles, but both involve many challenging steps. First, an institution must engage in strategic planning to identify their goals and find a potential partner. Next, the institutions involved have to exchange basic operational and financial information to gain a sense of each other’s assets and liabilities. Parties usually enter into a non-disclosure agreement that requires them to keep sensitive information confidential. A due diligence process then involves a review of each institution’s compliance with applicable laws and regulations and an assessment of bylaws, policies, and procedures. If all goes as expected, parties next sign a nonbinding letter of intent, which frames the structure of the proposed deal. After that, institutions contact the various state, federal, and accreditation bodies that oversee institutions to ensure that the new institution continues to meet quality standards and retains the ability to provide federal financial aid for students. Once institutions close the deal, they engage in post-merger restructuring. This can include selling a physical campus, repurposing physical assets, strategic downsizing of staff or integrating the team for a set period, identifying the eventual new permanent leadership team, and executing the remaining parts of the management plan.
It’s a complex process with a sharp learning curve, but many people in higher education need to know more about what mergers and acquisitions entail. Whether you’re contemplating or in the midst of an acquisition, here are considerations for being strategic about planning for the future of your institution.
As someone who has led several small colleges, I have been on all sides of the merger/acquisition/affiliation trifecta, including leading and participating in the due diligence process that helps institutions understand each other’s operations, legal exposure, and culture during a merger.
When I was the president of Cumberland County College (CCC) in New Jersey from 2016 to 2018, state legislators decided to merge my small but thriving college with Rowan College (RC) to create Rowan College of South Jersey (RCSJ), a regional community college. The situation was politically complex, and CCC’s faculty and staff unions were initially uncomfortable with the proposed merger, but they eventually accepted its inevitability.
CCC was the county’s crown jewel and enjoyed higher persistence and graduation rates than most other community colleges in the state. The college had historically been a pathway for residents to move up the economic ladder and into the middle class. A designated Hispanic-serving institution, CCC was home to a state-of-the-art theater center and robust STEM programs. Its campus housed the county’s workforce development center and vocational technical high school. The college also enjoyed significant philanthropic support from local leaders and businesses. The institution was not in trouble, and we predicted enrollment would increase due to local population growth and immigration. From an acquisition perspective, it was an excellent option for a larger college that wanted to expand its footprint.
In the five years since the merger, RCSJ has added value for students and the surrounding communities. RCSJ offers new vocational training programs in water utility and automotive technology, both industries in which retirement rates outpace the number of new employees entering the field. RCSJ also expanded the prior institutions’ number of partnerships within the health-care sector. This benefits large local hospitals and smaller medical clinics, as well as the college. Additionally, RCSJ established a partnership with Rowan University (RU, a four-year university) that allows students to seamlessly transfer and provides financial support to attend RU.
Although a merger can result in a stronger new institution, the change is still challenging. For instance, the leadership of the smaller institution is more likely than the leadership of the larger institution to experience a loss of autonomy. In the case of RCSJ, Cumberland County College was the smaller institution, and its stakeholders say they have experienced a greater loss of decision-making power than their counterparts at RC. I left before the merger was complete, and the RC president became the president of RCSJ.
Based on my experiences, I have four recommendations for those contemplating a merger or acquisition:
One, prospective partner institutions should make sure they have a cultural fit with each other. This includes identifying shared values. Both institutions should be clear about what they are willing to compromise on and should agree upon the terms of the dissolution of the affiliation should that become necessary. Institutions need a clear change management plan that includes the necessary up-front investments to realize the identified strategic objectives.
Two, the majority of mergers taking place in our sector today are driven by immediate or projected financial distress. Colleges and universities should negotiate a new affiliation before they face a financial emergency (but project an unfavorable financial future)—the healthier the balance sheet, the stronger the negotiating position of an institution seeking a partner.
Three, each institution’s leadership and board should engage in modeling of revenue based on known factors. Because costs are rising, staying stagnant and not growing will hurt institutions in the long run. Typically, the costs of salaries, health care, facilities and technology maintenance, and general liability and insurance of all types increase even when tuition and other revenue sources are not growing. Periodically taking stock of the factors that financially favor or disadvantage an institution is good stewardship.
Four, clear communications are critical. Relatively early on, the president and the board should invite relevant constituencies to provide insights into both the process and desired outcomes of a proposed merger, closure, or affiliation. This may include employees, students, alumni, donors, and key community and corporate partners. Leadership should clarify where public input isn’t needed. They must also alert accrediting agencies as well as state and federal regulatory bodies before the news hits the media.
Mergers and acquisitions are the new normal in higher education. Realistically, they are challenging to manage. Only 30 percent of mergers and acquisitions in all industries achieve their intended strategic objectives, according to the global management and consulting firm McKinsey and Company. Leaders and boards owe it to their students and employees to ensure that they have a path to achieving their goals, whether it is at the original institution or elsewhere.
Illustrations by Jin Xia
Plan Now, Succeed Later
- Know your data.
- Courageously face your reality.
- Develop and execute a growth strategy and monitor progress.
- Have contingencies in place to maintain a positive balance sheet.
- Begin research on potential partners early.
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