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.
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.
But it need not be this way.
There is likely to be a big consolidation of existing colleges over the coming couple decades. The closure of 0.2% of public institutions, 1.7% of private institutions, and 11% of for-profit schools from 2016–2018—in addition to the recent data from the Chronicle for Higher Education that suggests that roughly 60% of public and private institutions missed their enrollment goals and 67% missed their net-revenue goals—is just the beginning.
Because we’re still in the early years of this consolidation, there’s an opportunity for strategic mergers and acquisitions that strengthen higher education. At Entangled, we believe that the best schools will be bought by leading healthy institutions—not sold in a last-ditch fire sale.
Right now there are a limited number of valuable institutions that could be bought, but by 2025—proactive institutions will have acquired most of them. In other words, there is a five-year window for strategic mergers.
There are two reasons for a school to consider proactively acquiring another college or university.
1) Economies of scale.
2) The opportunity for schools to fill gaps in their offerings, be that programmatic, geographic, and so forth.
The trick for the acquiring school then becomes knowing why you bought a college or university—and then integrating it appropriately. If you did it to leverage your current business model—increase scale, for example—then you should integrate it into your existing business model and cut out redundant functions to save money. If you did it to reinvent your business model—to move into an innovative space, much as Purdue University did when it acquired Kaplan, you need to keep the new institution separate from the core.
For sellers, the big opportunity to sell before 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.