Is It Time to Consider a Merger?

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Image: François Berger For The Chronicle

By Scott Carlson

Colleges are facing their most significant fiscal crisis in recent memory due to Covid-19, and there’s no telling how long the disruption will last. The Chronicle recently published a special report, Financial Strategies for a Crisis and Beyond, to explore how colleges are navigating this difficult moment. The report explores strategic cuts and reinvestments; partnerships; and mergers and closures.

Mergers and consolidations have occurred in American higher education for a very long time, with some of the nation’s most prominent institutions forming from a union of two or more colleges: Carnegie Mellon University, Case Western Reserve University, and Hobart and William Smith Colleges, to name only a few.

The financial strain brought about by the pandemic will likely accelerate the trend, says Ricardo Azziz, who led the merger that created Augusta University in the Georgia state system and served as its founding president. Given that the vast majority of institutions in higher education are relatively small, with challenges in cost-control and public funding, along with lots of uncertainty in the future, he expects a wave of unions in the sector following the pandemic. “In a normal kind of industry, this would push for consolidation in the market,” says Azziz, who is an author of Strategic Mergers in Higher Education, a guide to the process published in 2019.

The trouble is that higher-education administrators are not accustomed to thinking about these drastic options. Advocating for a radical change in the identity of an institution can also run counter to the perceived role of a president. “We’re cheerleaders,” Azziz says, “and we’re not good at creating urgency.” A college president who sees danger ahead can push for a merger, but ultimately the decision rests with the board.

“One of the things that boards have to do better is protecting their leaders in transformative initiatives,” says Azziz, who is now a research professor in the School of Public Health at the University at Albany. “At the end of the day, they are not going to find leaders who are willing to take risks if a career is on the line.”

Board members themselves can have strong sentimental ties to their institutions, and might also resist change, even when signs of trouble are clear. For that reason, a conversation about a merger has to start slowly — and early, to give a college that will eventually need a partner to survive plenty of runway. Rick Staisloff, a consultant who has worked on mergers, says conversations should start in a tight circle — between presidents and board chairs — then start expanding out, person by person. “There is so much resistance in higher education; I think institutions are better served keeping it close to the vest initially.”

Presidents sometimes see the need for a merger before a board, says Azziz, so the president has to educate the board on the fragility of the institution and the potential in a partner. “Start your conversation confidentially with one, two, or three board members you feel comfortable with,” he says. “Slowly begin to build a general consensus around it. This is not something you can spring on a board immediately.” The process could take several years. “An institution that’s gotten into trouble and now needs to find a partner quickly — that’s not going to happen.”

Colleges approaching a possible merger with another institution need to have a deep understanding of that institution and of themselves. Staisloff recommends starting with looking at the academic program of another college to see how it might match your own. Are there opportunities to enhance the programs of both colleges or create something entirely new that couldn’t be created separately?

Recent years have seen a number of mergers between liberal-arts colleges and master’s institutions, and small, specialized (and often struggling) colleges of law and fine arts. Willamette University, for example, has initiated mergers with the Claremont School of Theology and the Pacific Northwest College of Art. The latter merger came after years of conversation between the two institutions.

Institutions that are in a dominant or acquiring position — particularly in this environment — should think about these questions well ahead of an approach by another institution, and how they line up with overall strategy. Peter Stokes, who leads the higher-education practice at Huron Consulting, says that he advises colleges to consider the kinds of qualities they would look for in a partner institution: Do they want to enhance their academic portfolio, searching for new populations of students? Are they more interested in a new geographical location? What mission would align with their own?

Terms like “dominant” are loaded, although many mergers feature an institution that has more students and resources than the other. But Azziz rejects the notion that mergers are entirely about an acquirer and an acquired college. “Institutions tend to have a heterogeneity of strengths and weaknesses” in academic programs, student profile, athletics, brand, and so on, he says. “The vast majority of mergers tend to be complementary in some way. It’s very unusual for an institution to not bring some strengths to the table — unless they wait too long.”

More importantly, says Azziz, college leaders should pursue mergers for the right reason: “Well-crafted mergers are not about finances, not about sustainability” of the institution, he says. “They are about what is better for students. Can we offer them more programs, more academic support, better infrastructure, better facilities? That’s all that should drive consideration for these kinds of transformations.”

The leaders of the merging institutions should understand the financial, legal, and market implications during courtship. The profiles and risks should be completely understood by the college in the acquiring role, including net revenues and their drivers, the market position of the potentially merged colleges and academic programs, debt carried by the institutions, physical plant condition, and active or pending lawsuits or other legal risks. If the weaker institution goes bankrupt, that doesn’t make the institution a more attractive acquisition, as it might in the business world; financial troubles can threaten a college’s accreditation and cause headaches for the acquiring college.

At these moments, leaders need to reinforce their vision for the merged institutions to deal with the “inevitable knee-jerk reactions.” “Ideally, their motivations are clear and rational, that the opportunity makes sense within the institutions’ history and strategy,” he says.

For campus leaders, dealing with the opposition to a merger can be “exhausting,” says Azziz. “Negative attacks will be inevitable. It doesn’t matter how good the merger is, how well you handle it, how nice you are, how politically savvy you are — there will always be a group of people that will not want the merger and oppose it. It’s easy for a small number of people to create an enormous amount of noise on social media.”

“Time is the enemy of a successful merge,” says Azziz. Consider the case of Virginia Commonwealth University: Formed from a state-imposed merger of a public medical school and an arts-and-professional school in 1968, the university remained culturally and physically separate until the 1990s, when Eugene P. Trani made efforts to finally meld the two sides of campus. During those decades, VCU’s image and brand suffered from the confusion and resentment held by students, alumni, and locals over the shotgun marriage.

“The pain of a merger does not go away. It’s a generational thing, and people need to accept it,” Azziz says. But if college leadership does not press the two institutions to unify, the resentments and resistance will find a foothold. “Once you make a decision to merge, you have 18 months, maybe 24 months on the outside, to actually execute it. If you go beyond that, you’re not going to make it, because the anxiety, the uncertainty, and that resistance will mount to a level where it becomes hard to overcome.”

Administrators also need to know about the behavior and intentions of the leadership of the partner institution. Stokes, from Huron, has seen situations where a president and a board chair are out selling their institution to separate acquiring universities with different sales pitches. If the leadership of the weaker institution is not aligned and operating above board, the acquiring institution can waste time and money. Know who you’re really dealing with, says Stokes: A campus leader looking for a merger with a stronger institution, for example, might claim that the college’s bank will retire the debt for 80 cents on the dollar. “It’s really up to the bank to say, ‘Yes, we can retire that debt for 80 cents on the dollar.’”

Leaders of acquiring institutions are often a certain type, says Stokes: entrepreneurial, bold, and ready to take action, even if details about the partnership have not been considered or verified. “You’ve got to manage the expectations of the entrepreneurial leader,” he says. “People can fall in love with a deal.” Saying no is an acceptable outcome.

Colleges that merge might be looking to expand their program offerings or services. But a merger inevitably leads to redundant programs and positions — particularly in upper administration. If part of the rationale for merging is to reduce costs and achieve economies of scale, the elimination of positions will likely be part of the process. Mergers might also involve ending some academic programs; although “teach out” programs are most often associated with closing colleges, merging institutions should consider whether they need to bring some students to the end of an academic program. Accreditors like the Southern Association of Colleges and Schools ask merging colleges for plans regarding transfers and teach outs, just as they would a closing institution, says Kevin W. Sightler, who oversees closures for SACS.

The merged institutions should also be prepared to reorganize and revamp a range of structures and services: the mission statement, curriculum, promotion-and-tenure policies, student services, library services and collections, athletics, technology services, campus-security personnel and policies, and advancement and alumni relations, among others. Personnel will probably have to plan and execute these reorganizations while still performing day-to-day duties in running the college. That can have an impact on morale, Azziz warns.

In the eyes of students, alumni, and faculty members, particularly at the weaker of the two institutions, a merger can be perceived as a loss of identity for the institution. Meanwhile, the staff, students, and faculty members at the stronger institution might see the merger as an imposition — added costs and responsibilities at an already difficult time. Stokes notes that after the merger between Boston University and Wheelock College, students at BU were “looking down their noses at the Wheelock students because the selection criteria were different.”

Scott Carlson is a senior writer who explores where higher education is headed. Follow him on Twitter @carlsonics, or write him at scott.carlson@chronicle.com.

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