According to a July 2023 report by McKinsey & Co, since 2020, the number of mergers and acquisitions in higher education has increased nearly threefold from 11 between 2001-2005 to 31 between 2016-2020. Since 2016 Higher Ed Dive has been tracking college closures and mergers.  Last updated on April 29, 2024, New York has had the most activity with 11 schools closing, merging or planning to do so. Massachusetts follow with 10 schools, 9 in Illinois and 8 in California.

The National Student Clearinghouse Research released in January 2024 reveals that there are still more than one million empty seats on college campuses as compared to five years ago, and there is still no growth among Freshman 20 years old and younger (this number is 5.3% below 2019 levels).  Further, undergraduate enrollment overall is down and remains 3.3% below pre-pandemic levels. 

These continued enrollment shortfalls, combined with increasing operating costs in all areas of higher education (personnel and other than personnel expenditures) create an unsustainable financial picture for a growing number of institutions and lead to difficult choices regarding the future of the campus.  In an effort to avoid closing, schools are exploring mergers and acquisitions that can lead to the merging of two institutions into one of the two, the merging of two institutions into a new entity, and the consolidation of multiple institutions existing within a system. 

ACAO hosted a recent town hall titled, “Higher Education as an Industry: Mergers, Acquisitions and Consolidations,” featuring a spirited conversation surrounding the challenges and opportunities. 

There are many reasons to consider a merger or acquisition, but at the core it should represent a strategic alliance designed to strengthen one or preferably both institutions.  For example, it can expand academic offerings for students, expand an institution’s geographic reach, enhance intellectual capital (e.g., teaching and/or research personnel), and it can create back-office efficiencies.  Perhaps most important to institutions, by avoiding an outright closure, a merger or acquisition negotiation can result in a legacy for the school. 

Searching for merger and/or acquisition partners is not an easy task.  There are many considerations that must factor into decisions.  For example, it is important that there be alignment with mission, culture, and programmatic and academic offerings. The fiscal health of both institutions – both I the short-term and in the long-term must be examined with comprehensive due diligence.  Discussions regarding management expectations regarding the “before and after” for both institutions must be clearly articulated and agreed to (e.g., the name of the new entity, who will be the leadership team of the newly emerged institution, what will the governance look like, which policies from either or both institutions will apply to the new entity, etc.).  Real estate decisions are often required regarding ownership/possession, and present and future uses.  This can be particularly challenging where financing and/or donors are involved. 

Timing is equally important.  By the time some boards and management reach the conclusion that it is time to merge or to be acquired, time is often not on their side, and all aspects of these types of transactions must follow a litany of regulatory and legal requirements before any change of oversight and ownership can be accomplished.  The timing of many of these steps are not in the control of the institutions of higher education, but rather in the control of regulators and courts.  

There are dozens of moving parts to any conversation surrounding a merger or acquisition.  For example, institutions must conduct due diligence about the quality of academic programs, the economic health of involved institutions, real estate and human resources.  Relationships must be managed, including identification of key negotiators. It is critically important to manage communications – internally (e.g., board, leadership, students, faculty, staff, parents), externally (alumni, donors, community at large) and among institutions.  

It is also critical to the success of any effort to assemble the right team.  Institutions need strong financial modeling with respect to anticipated revenue and expenses, debts and other liabilities.  Real estate will need to be appraised and assessments of facilities and academics must occur.   The list of legal issues to be addressed can be overwhelming, requiring experienced counsel to guide the institutions through various phases of negotiations and steps towards the ultimate merger or acquisition.  To begin, there are many different legal options that could lead to the ultimate goal of a newly created entity or change of management.  Lawyers work on term sheets, negotiations, contracts, indemnification agreements, advise about financial aid, labor and employment law issues, union contract issues, benefits alignment, policy alignment and much more.

As previously mentioned, the regulators will all play significant roles in the ability to bring a merger or acquisition to reality.  It is important to factor into timelines discussions with regulators, submission of appropriate paperwork, potential site visits, and regulator reviews and decision making (e.g., when they meet and whether deliberations involve entire commissions/council, executive committees, or individual officials).  For example, national accreditors will need to understand and approve a proposed transaction.  Specialized accreditors, where applicable, will need at least notification, and a possible substantive change submission, state accreditors have guidelines and regulations that need to be followed (this includes education departments and sometimes attorneys general and other agencies depending upon the academic programs impacted and depending upon whether the institutions are public, private and/or for-profit), and of course the U.S. Department of Education must approve of the transaction for purposed of updating ECARs and the ability for students to be eligible for financial aid.  

These points and many more were discussed at the recent ACAO Town Hall linked above.  Vidal Sassoon sums up the process of mergers and acquisitions well when he commented, “The only place where success comes before work is in the dictionary.”  These deals take a lot of time, patience, work, and energy.  The end result, however, should make it better for students, employees and host communities. 

Written by Patricia Salkin, Senior Vice President for Academic Affairs and Provost of the Graduate and Professional Divisions, Touro University