May 03 2019

The Outlook for Campus Mergers, Joint Ventures and Other Strategies

Higher education leaders encourage early planning and explain why mergers may be more than a last resort.

Immense financial pressures in higher education suggest campus closures, mergers and other outcomes may become common, bringing tough choices for leadership and numerous implications for IT. Declining enrollment is one challenge, but others exist on many fronts, from trade-specific “boot camps” that are much more affordable than four-year institutions to an increase in working-age students who only pursue part-time study.

In the face of a financial future that some observers find potentially distressing, a TIAA Institute report makes the case that mergers shouldn’t be viewed as a last resort or a negative outcome. Its authors pose a question: Is a merger, perhaps, a proactive strategy toward something better? 

While fully recognizing the many costs that attend a merger, from infrastructure needs to branding initiatives, the authors also point to the benefits that compel institutions to pursue mergers in the first place.

“By creating greater size and scale,” they write, “mergers provide opportunities for cost savings, operational synergies, and the chance to engage and re-energize stakeholders.”

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Unique Financial Challenges Put Pressure on Higher Education

Colleges share many of the challenges and market pressures as private businesses, but they also have unique complications. As Laura Marcero, a managing director at consulting firm Huron, points out, institutional assets often comprise real estate and endowments, both limited in their ability to provide quick financial infusions. Educational institutions also have specific limitations regarding labor, financial restructuring and organizational decision-making.

For these reasons, Marcero writes, colleges must consider all possible means of maintaining financial health, including joint ventures and shared services agreements

“The right time to invest in a higher education institution’s financial future is sooner rather than later,” she writes. “The earlier leaders kick off any of these strategic processes, the more alternatives will be available — and the more time you’ll have to identify the best partners.”

The TIAA authors, representing four well-known higher education institutions along with consulting firm EY, note colleges under financial duress have several options — not only mergers, but also shared services and campuses, partnerships, affiliations and cobranding initiatives

By pursuing a merger only by sheer necessity when every other avenue has been exhausted, an institution may back itself in a corner from which it is hard to escape. “Optimally, mergers should not be considered only in extremis, when few resources and assets remain; political goodwill, staff morale and energy are low; and negotiating positions are weakest,” the authors write.

What would it look like for a merger to be viewed as a desirable outcome, an advantageous evolution that aligns with broad strategic planning? Such decisions are admittedly complex, with numerous inputs and myriad circumstances unique to each institution. But the TIAA report authors argue that a merger “is a tactic that should be considered seriously and proactively by many institutional leaders — not just those under threat of closure. Ultimately, to be successful, mergers must be part of a larger strategic plan and not an isolated tactic or endpoint.”

Success stories, not just survival tales, emerged from institutions that have chosen to weave their futures together. The Thunderbird School of Global Management, acquired in 2014 by Arizona State University, is enjoying growth that includes a planned $75 million global headquarters. On the flip side are growing pains and rocky integrations, which happened after George Washington University absorbed the former Corcoran College of Art and Design.

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Advance Planning Gives Campus Leaders the Best Chance of Success

Whether such changes are good or bad for higher education as a whole, experts believe we’re heading for more of them. Last June, Inside Higher Ed released a report titled “The Growing Role of Mergers in Higher Ed,” which also refutes the common wisdom that a merger should be avoided. 

Mergers don’t have to be a compromise of institutional identity, the report notes, nor do they necessarily portend a “battle between constituencies.” In fact, even the process of considering a merger can yield valuable insights for leaders, regardless of whether they ultimately choose that path

“A well-thought-out merger process can help presidents, boards, faculty members, students and staff members understand where a college stands and where it must go in order to preserve its mission and values into the future,” the report notes.

The point is not, of course, that mergers are the right answer for every institution. But experts do suggest there is value in being open to all possibilities and then wrestling with the evidence and insights, analyses and challenges, and hopes and fears, that affect institutional futures. 

Only then will colleges have the best chance of crafting solutions that ensure their ability to thrive long after today’s leaders are gone.

This article is part of EdTech: Focus on Higher Education’s UniversITy blog series.

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