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Robert Spencer

Higher education institutional closures, mergers and acquisitions (M&A) have increased over the last two decades as the industry faced mounting financial and enrollment pressures. According to a recent report, global M&A volume in the higher education segment increased by 46% in 2019. With the onset of the COVID-19 pandemic in 2020, there are many indications that such activity will continue to rise.

As higher education institutions respond to shifting market dynamics, M&A activity is expected to be increasingly prevalent, in part, because of:

• Heightened fiscal and enrollment uncertainty from the COVID-19 pandemic.
• Shifts from traditional college student populations to include more “nontraditional” learners.
• New academic pathways (e.g., certificate programs) as an alternative to traditional programs.
• The increasing costs to operate a physical college or university campus.
• Waning public support for higher education.

Still, before pursuing any type of M&A venture, higher education leaders on both sides of a potential partnership should do their due diligence to determine when, whether and how best to proceed while reflecting on the alignment (or misalignment) of their institution’s financial health and strategic plans with current market forces and the changing industry landscape.

Assessing Strategic Readiness for M&A

Studies suggest that the success rate of mergers in the corporate sector is less than 50%. Even in the face of significant financial challenges like those presented by the pandemic, effective mergers must not be pursued as a quick fix but rather in service to a clear strategy focused on the institutional mission and sustainable financial health. Consolidation alone is not the endgame.

The following matrix has been designed to help institutional leaders as they consider the role their institution is best suited to play in an M&A transaction or other partnership, along with some key actions that can improve their marketability. In an M&A transaction, those on the left of the chart will most commonly be sellers, and those on the right will typically be buyers.

Leaders of institutions with financial resources may pursue strategic ventures to advance their mission, expand academic offerings or enable growth. On the flip side, leaders of financially challenged institutions should identify focus areas that will drive transformation to potentially bring value into a strategic alliance with a better-resourced university. While these categorizations are helpful as a starting point for exploration and consideration, most real-world deals require more nuanced categorizations.

M&A Readiness Decision-Making Matrix

When struggling colleges come together, very rarely are their fundamental defects improved; rather, the merger merely creates one larger institution, besieged by diverse legacy challenges. The best-case scenario is to combine two institutions with complementary strengths.

When struggling colleges come together, very rarely are their fundamental defects improved; rather, the merger merely creates one larger institution, besieged by diverse legacy challenges. The best-case scenario is to combine two institutions with complementary strengths.”

For example, Texas Christian University (TCU) and the University of North Texas Health Science Center (UNTHSC) successfully created a unique private-public partnership to establish a new school of medicine. TCU was financially healthy, but they did not have a medical school and recognized the need for more physicians in the region. Meanwhile, UNTHSC had medical education programs and strategically valuable property, but did not alone have the resources to establish the new medical school, which welcomed its inaugural class in 2019.

Identifying the Right Partner for M&A

Once a college or university has determined its readiness to explore a strategic alliance, the next step should be to develop a set of opportunity criteria to identify well-suited partners. By creating a set of strategic and operational (including financial) criteria, leaders can define clear objectives to guide future activities.

These criteria should include at least some of the examples listed below, as well as others:

As part of a larger approach to pursuing strategic partnerships in higher education, it is critical to assess an institution’s readiness for such a venture and identify a stable of appropriate potential partners. By embarking on a robust program of exploration and assessment, institutional leaders can make informed strategic decisions that lay the foundation for future growth.