Mergers and acquisitions used to be a rarity in higher education. Not anymore.
The Wall Street Journal notes that the past four years have seen 21% more M&As in higher ed. than the previous 18 years. And a professor from the University of Pennsylvania predicts up to 500 additional four-year universities could close in the near future.
Translation: Watch out for more merger announcements on the horizon.
Listen up, higher ed. leaders.
The hallmarks of M&As for higher ed. institutions aren’t all that different from those in the private sector, which has been navigating these deals forever (literally). But there is a notable distinction you need to be aware of if a takeover or amalgamation could be in your institution’s future.
In the business world, a company often targets an acquisition because the entity they’re acquiring or merging with is attractive. A great example is the acquisition of a startup – it’s likely they have something unique and proprietary to offer, and their star is on the rise.
But unlike the private sector, post secondary institutions don’t tend to position themselves for acquisition when they’re performing well. It’s much more likely that the acquisition contender is struggling, whether for operating capital, additional enrolments, or another reason. Whether the M&A is justified as a strategic move to achieve growth ambitions, merging of resources to better support the community or to achieve a unique competitive advantage – it’s reasonable to assume that (at least) one party in the M&A was underperforming in some way.
What does that mean for you and other higher ed. leaders trying to stay in the know? The evaluation of a possible amalgamation must go beyond assets and liabilities on a balance sheet. We have some perspectives for you to consider before you sign on the dotted M&A line.
Why M&As are on the rise in the first place.
It would be easy to blame the COVID-19 pandemic for mainstreaming mergers and acquisitions among colleges and universities. And while it’s true COVID made many institutions fall on hard financial times, it’s not the only culprit causing schools to close their doors. In fact, the pandemic likely only accelerated what was already on the horizon.
Growing competition outside of traditional post-secondary education options is what’s really behind a lot of school mergers and acquisitions. Google and Microsoft are both in the online education game now. And microcredentials are further cannibalizing people who would otherwise pursue conventional degrees.
Not to mention prospective students are questioning the value of a college education more and more. They wonder: Is it worth the high tuition price when the importance of a degree is waning?
4 factors to consider before your higher ed. institution jumps on the M&A bandwagon.
Even if your institution isn’t currently considering a merger or acquisition, the upward trajectory of this trend is undeniable. You should learn about the factors specific to higher ed. M&As ASAP. Here we break down four decision-influencing aspects to examine:
1. Does the acquisition amplify your higher ed. brand?
Imagine a world where University A acquires its neighbor, College B.
Let’s say University A is a large school with nearly 30,000 students. It’s a commuter campus, outside of the core of a large urban centre. And among the myriad of programs it offers, it boasts a strong social work program.
Meanwhile, College B clocks in at several hundred students – and is struggling to grow its enrolment base. It’s located right in the heart of that same city’s downtown. And despite its humble size, College B has a nationally recognized social work program of its own.
In this (entirely hypothetical) example, any student looking to this market to study social work would have two choices. Which means that both institutions are spending time and resources to compete regionally. But by University A acquiring College B, not only would it bolster its own (already competitive) social work program – it could provide them with the opportunity to stop competing regionally, and to position their combined offering nationally. Together, the schools are a social work powerhouse.
University A had its (fictitious) strategy right. They made sure the acquisition augmented an area of strategic importance for their institution — their existing, noteworthy social work program. (College B benefits, too: it’s reasonable to assume their enrolment woes could be helped by the recruitment power of their larger partner.)
If you find yourself in the market for an acquisition, ask yourself whether the institution you’re considering acquiring improves your own institution. Perhaps it adds something you’re lacking — like an entire program, or a presence in another location. Or maybe it strengthens something you’re already known for — as in our example. Having a strategic plan with a clear vision for your institution will help you discern whether the amalgamation makes sense with and furthers said vision.
The key is to ensure the deal leaves your university better than before.
2. Does merging allow you to more effectively communicate your school’s value?
It’s great if the acquisition represents a positive change for the acquirer. But what about the acquiree? The merger should help the organization being acquired, too.
As mentioned, schools often find themselves in positions to be acquired because they’re struggling with the usual — like low enrolment. But a school can become a candidate for acquisition for a less obvious reason, as well: They’ve struggled conveying their value in a way that attracts prospective students.
If that sounds like your institution, a merger could be just the opportunity you need. A deal would offer so much more than mere survival during difficult times. It would provide your school with a megaphone (in the form of resources from the acquirer) to tell your brand story effectively. And to reach right-fit students and donors once more.
Sidenote: Your story might need to be altered based on your joint legacy with your new “parent” institution.
3. Is your institution’s social purpose on par with your new partner?
Speaking of brand stories and attracting right-fit students, there’s one thing your prospective students unequivocally care about: Your social purpose.
Thanks in large part to young people’s interest in current issues, more and more institutions are embracing social purpose as a part of their strategy and identity. Whether your school supports Black Lives Matter, Indigenization, LGBTQ+ visibility, accessibility, or other causes, taking a stand matters to the students you’re trying to attract.
Because of how critical it is, you need to be certain the M&A on the table aligns with your social purpose. If your values don’t mesh with the values of the institution you plan to merge with, you risk alienating loyal donors and alumni.
There’s one (potential) exception. Aligning social purposes doesn’t matter as much if you’re only acquiring a school for its land, buildings, or location. But if the acquired institution’s brand will live on in any way, you must consider how your values match up.
4. How will you present an amalgamation of university brands?
There are, of course, less philosophical and more practical details to consider when it comes to higher ed. M&As. Namely, does the acquisition become a part of your branded house or your house of brands?
Let’s return to our previous example. In our hypothetical merger, if University A decided to retain College B’s brand – including B’s name, logo, social media profiles, etc. – that’s a house of brands. Both University A and College B would have active voices in the market.
On the other hand, a branded house implies that University A phases out use of the College B’s name/brand entirely (perhaps relegating the College B brand to their website’s “History” subpage). They don’t use that name or brand anywhere else.
Deciding which path to take comes back to the reason for the M&A in the first place. If you’re only interested in square footage, you don’t need to preserve the other school’s brand. But if a school you’re acquiring has a really strong program despite enrolment challenges, or a passionate community with strong attachment to the identity of that institution – you should think twice before doing away with their name and losing the clout that comes along with that program. Whatever you do, don’t anger a fervent donor base by erasing their school’s identity altogether.
A solid higher ed. brand can hold down the fort amid the fusion.
ED Marketing’s bread and butter is branding. And while the decision to merge or acquire isn’t a purely marketing purview, branding plays a significant role in the success (or struggle) of M&As once that decision is made.
If you come into a merger or acquisition with a defined brand, you can assess if and how the other school’s brand fits with yours. The combination will also make sense outwardly — to donors and the higher ed. community as a whole — because your brand is defined and therefore well understood.