https://www.chronicle.com/article/A-Merger-Wont-Save-Your/247194By Robert Witt and Kevin P. Coyne
September 22, 2019
There is little disagreement that private colleges are facing a financial crisis. Conservative estimates say that hundreds of institutions are in peril, and discouraging enrollment numbers are likely to only get worse. In other industries, similar conditions have presaged waves of consolidation in which weaker entities sell out to stronger ones through a sweeping pattern of mergers. Many in higher education have optimistically predicted that struggling colleges will be saved by a similar wave.
The data, however, say otherwise. There is almost no reason to think that mergers will be a widespread enough phenomenon to solve the crisis. We believe that for the vast majority of private nonprofit colleges, the only route to survival — in any form — will be through the college’s own internal actions to improve its value and efficiency. Those who fail this test will not merge into another institution — they will simply cease to exist.
We examined every college closure, merger, and acquisition from 2016 through the end of the most recent academic year — 163 of them across all types of institutions. It gave us a large enough database to ask the question: Should a failing private college expect to find a willing merger partner? The answer, unfortunately, is no — regardless of whether it looks to merge with for-profit colleges, public institutions, or private nonprofit colleges.
For-profit colleges have been very reluctant to engage in mergers — even with institutions that share similar business models. Since 2016, the for-profit college industry allowed 68 for-profit institutions to simply close, saving only six such institutions through mergers. They did not acquire a single nonprofit college.
Public colleges took over many nonprofit institutions during this period (33) —but only other public colleges. Presumably, they were ordered to do so by their governments, because as a matter of public policy, governments do not close failing institutions. (As evidence, not a single public institution was listed as "closed" during this period.) Only one attempt was made to merge a private nonprofit institution into a public one — Mercy College of Ohio into Bowling Green State University — but that attempt eventually failed.
Among private nonprofits, 55 institutions ceased to exist. Of these, 41 were closed, and 14 were consolidated through mergers. Superficially, this suggests that a typical failing institution might expect a moderate probability of finding another private nonprofit college to be a partner. However, a deeper look shows that’s not the case.
Of those 14 mergers, virtually every one of them was a result of unique circumstances that are not representative of typical troubled colleges. First, fully eight of the 14 consist of small, highly specialized niche schools in such fields as music, the fine arts, and medicine being absorbed into larger nearby institutions.
These include such examples as the Salt Institute for Documentary Studies being absorbed into the Maine College of Art, the Bridgeport Hospital School of Nursing being absorbed into the University of Bridgeport, and the School of the Museum of Fine Arts, Boston, being absorbed into Tufts University. Similarly, another one, Union Graduate College’s merger with Clarkson University, involved an institution that granted only graduate-level degrees.
Three more consist of mergers among Bible colleges with previous religious affiliations. And one, Wheelock College being absorbed into Boston University, seems to have been largely fueled by Wheelock’s unique situation of owning highly valuable real estate near Boston University’s land-constrained campus. Thus, only one of the 14 mergers (Philadelphia University’s merger with Thomas Jefferson University) can be considered a potential example relevant to most colleges.
So while there will likely be a handful of mergers among private nonprofit colleges in the future, the data suggest that most will be unusual — based on atypical factors, like those of the past few years. For most struggling colleges, the only route to survival will be through making optimal academic and operating decisions and implementing them with an emphasis on productivity and cost management.
For one, colleges need to make themselves distinct. A college’s name or brand should evoke a response from potential students and parents that captures the institution’s strengths, values, and culture. The brand should help answer two important questions: Will the college help the student grow into the type of young adult that both the student and parents aspire to? And will the college prepare the student for success in life? A strong brand will improve recruitment, which will reduce the need to use scholarships, or price discounts, as a recruiting tool.
We've seen how those price discounts have grown in popularity and amount over the years. In the absence of distinctiveness, colleges faced with increasing enrollment pressures have increasingly turned to the strategy to attract students. Discount rates for private colleges now average 50 percent. And while increased discount rates may have maintained or even increased enrollment, net operating margins have declined, creating serious financial problems at many institutions. This model almost certainly isn't sustainable.
Colleges also need to become more efficient, especially when it comes to faculty salaries, their largest single operating expense. Colleges need to implement systems that allow chief academic officers, deans, and department chairs to better manage how effectively faculty time is being used. As colleges look to an increasingly challenging future, curriculum delivery must be driven more by student program needs and less by faculty teaching-schedule preferences.
A college is not a business. However, in today’s increasingly competitive higher-education marketplace, a president and board that do not manage their college in accord with best business-management principles and practices put their institution at serious financial risk. Those who think that they can look for mergers to save them will be looking in vain.