As the financial pressure on small colleges continues to increase and the number of colleges closing continues to tick upward, more and more institutions are considering whether it’s time to consider merging with another institution. There are many potential benefits to doing so: Administrative costs can be shared, merged institutions can provide more-diverse curricula and more-robust student services, and merged institutions can achieve greater reach and breadth, which can in turn enhance their branding, enrollment, and financial stability. In short, a merger can help ensure a college’s survival, at least in some form.
But not everyone agrees that mergers are a realistic tactic. In a recent Chronicle essay, Robert Witt and Kevin P. Coyne analyzed mergers occurring since 2016 and found that few, if any, failing private colleges should expect to find a willing partner. The authors suggested that for the vast majority of private nonprofit colleges, the only route to survival would be through institutional actions that improve value and efficiency, noting that a president and board that do not manage their institution in accord with best business-management principles and practices put their institution at serious financial risk.
The larger the institution is, the more it can invest in its students.
That’s an important admonishment. However, they also argued that mergers would not be a sufficiently widespread phenomenon to solve the current crisis in higher education. Here we disagree. In fact, the data presented by Witt and Coyne, as well as our own analyses, suggest that the real lesson to be extracted is that institutions that could benefit from a merger simply wait too long.
Our examination of more than 100 mergers, interviews with more than 30 leaders involved in mergers, and extensive review of the literature indicate that a common and fundamental obstacle to a successful merger is the failure of college leaders to even contemplate and explore a merger as a proactive option in their strategic planning. Why is that so? In part because leaders believe that considering a merger somehow implies their inability to maintain a college.
That stance may be exacerbated by inaccurate readings of the future, disregard of the available data and environmental realities, or simply the failure to carry out rigorous scenario and strategic planning. Consequently, colleges that wait too long to consider a merger can find that their financial, political, enrollment, and brand value has declined to the point that they are often unable to identify a willing partner.
Our own data support that assertion. For example, despite the many efforts of colleges to deal with the economic and demographic stress they face today, closings are on the rise, particularly among private colleges. Over the past decade, more than 100 of them have closed.
Based on an analysis conducted by EY-Parthenon, several risk factors emerge as predictive of closure, including weaknesses in institutional strength, in revenue generation, and in financial structure. Not surprisingly, institutions with many risk factors, in contrast to those with just a few, are more likely to close outright rather than to merge. Assuming most higher-education leaders would prefer to merge rather than to close, these data, like those of Witt and Coyne, suggest that the more severely impaired an institution is, the less likely it is to find a willing merger partner.
But why should institutions seek to merge anyway? Because doing so often improves their value to their students — the foremost goal of every college. A 2019 study by Lauren Russell, an associate professor in the Fels Institute of Government at the University of Pennsylvania, is instructive in this regard. Russell systematically studied the effects of the first five consolidations occurring in the University System of Georgia on educational quality and efficiency, and found that institutions selected for consolidation had lower retention rates than did those that were not chosen to merge. Those differences in retention narrowed after merger.
While the exact reasons for the improvements are hard to pinpoint, spending data and conversations with administrators suggested that increased investment in academic support, such as advising, made possible by improved-scale economies, was in part responsible.
What about the impact of mergers on financial sustainability? As a general rule, “bigger is better” when it comes to financial stability. For example, in an earlier study, we found that the bigger the institution’s enrollment, the less risk of its closure.
Similarly, the larger the institution is, the more it can invest in its students. For example, in one analysis the median administrative-to-instructional cost ratio was lower for large versus small colleges, suggesting that on a per-capita basis, more resources are dedicated to instruction than administration at larger institutions.
Well-chosen and well-planned mergers of colleges, then, can result in improved student outcomes and financial stability. To ensure timely discussion of those strategic options, governing boards and institutional leaders should proactively include mergers in their regular strategic-planning considerations. Considering such strategic options should start early, and institutional leaders should not wait until their institutions are in dire straits to begin to identify merger partners. By then there may be none.
