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Mergers and Survival

Mergers and Survival
July 13, 2010

Like so many small private colleges, Dana College, a small Lutheran institution on the outskirts of Omaha, has long been precariously close to its death.

“I’ve worried about the college as long as I’ve known the college,” says Myrvin Christopherson, a 1961 alumnus who was Dana’s president from 1986 until 2005. During those 19 years, not only did he weather several years of budget deficits and a fire that destroyed the college’s Old Main, but he also increased the college’s endowment from $1 million to more than 10 times that. “It was always able to pull through.”

And that was the mentality that many alumni, donors, faculty members, administrators and residents of the small town of Blair, Neb., maintained, at least until a few weeks ago: Dana is special, Dana is strong, Dana can survive.

But now that the college is almost certainly dead -- after the Higher Learning Commission of the North Central Association of Colleges and Schools denied Dana’s request for continued accreditation after a change of control that would have put it in the hands of a group of investors -- supporters and observers are wondering what else could have been done to keep Dana alive.

Again and again, they turn to the same potential solution: a merger or partnership between Dana and Midland Lutheran College, in Fremont, Neb., another small institution of modest financial means and below-capacity enrollment.

For decades, officials and supporters of Dana and Midland occasionally considered joining forces, including when a key donor to both institutions exhorted them to do so a few years ago. But each time, the conclusion was reached that a merger would be too expensive, or too wrenching to the institutions and their towns, to succeed. "There's never been a keen desire on the part of the faculties or administrations of either institution," Christopherson says. "We were both critical to the culture and education and life of these communities."

At many other small private colleges that have considered mergers, the story, from the point of view of institutional leaders and advocates, is the same: Their institutions are unique, special, like no other place on earth. Backers believe that their institutions will be able to survive dwindling enrollments, high tuition discount rates and rising costs. Though they've faced scares during previous recessions -- as Dana and Midland both did -- they've been able to make it through, and with that history and confidence in their institutions, presidents and boards take the leap of faith that they will be able to continue on without merging.

Even at a time when the business model of nonprofit higher education is perhaps being challenged on more fronts than ever before, it's not clear that the leaders of struggling colleges are considering mergers more seriously than they have in the past. But, for some, the death of Dana might prove a cautionary tale.

Mulling a Merger

For many years, neither Dana nor Midland Lutheran took the possibility of a merger or partnership seriously. A mix of passion, rivalry and ego led decision makers at the two colleges to see their institutions, though small and heavily tuition dependent, as endangered only abstractly. They knew in their hearts that alma mater would live on indefinitely.

The most serious consideration of a merger happened just a few years ago, after an Omaha World-Herald article in December 2006 conveyed an ultimatum from a major donor to both institutions: no capital donations until the viability of a merger was thoroughly studied.

On first glance, and at a common sense level, a merger would’ve been logical. Two small colleges, 25 miles apart, both struggling to get by on enrollments far smaller than their capacities and affiliated with the Evangelical Lutheran Church in America.

Upon closer inspection, though, a merger didn’t seem to make sense to many of the parties involved. After the donor made his plea, the two colleges brought in Presidential Practice, a consulting firm staffed by former college presidents, to study whether it would be possible to unite the colleges. “They indicated that they didn’t feel a merger was feasible,” says Dennis Gethmann, president of Dana's Board of Regents. “The culture of the two colleges was too different” and their resources were insufficient to make a merger work.

Had the colleges decided to move ahead on a merger, it’s likely that one of the campuses would have had to close, he adds. “Can you imagine the politics that would’ve been involved in that?”

Christopherson says that the colleges would occasionally consider collaboration, especially after they both became affiliated with the Evangelical Lutheran Church in America in the late 1980s. “Wouldn’t it be good if we had one Lutheran college near Omaha?” he recalls many people at both colleges thinking. “As small private colleges with small endowments, we’ve both been really challenged for a long time. We were looking for savings."

He wishes he had more seriously pursued a merger while president. “In hindsight, maybe we should’ve come together. I probably would have preferred that there would’ve been some way that Dana could’ve been preserved rather than this tragedy.” He adds: “Of course you always look back and wonder, ‘What else could I have done, should I have done?’ ”

After rejecting the idea of a merger, and with the college teetering over a cliff, Dana's Board of Regents decided in March that handing over the college’s name, resources and history to a for-profit corporation would be the only way to keep the college alive in any form. The Higher Learning Commission, though, threw a wrench in that plan when it said it would deny the college continued accreditation under the for-profit owners. After scrambling for close to two weeks since that denial, both the buyers and the Dana board have acknowledged that the college is almost certainly dead.

The board held its final scheduled meeting on Monday morning, appointing a receiver who has authority over the college’s assets (owned by bondholders) and making plans to ensure that students have access to their transcripts. “We’re wrapping up the affairs of the college,” says Gethmann, the board’s chair. An executive committee of four will stay on to “take whatever steps to cease operations” in the coming months.

The nonprofit Dana’s accreditation, he adds, will likely continue until next spring, so that students who would’ve been seniors this coming academic year can receive Dana diplomas after completing their coursework elsewhere. Many are heading to Midland.

Benjamin E. Sasse, who became president of Midland this spring and grew up in Fremont, says many people at his institution regret not doing more to save Dana. “A lot of us wish that [a merger] had been pursued more aggressively.”

But the fact that there was no merger has been at least a temporary boon for Midland. About 300 of Dana’s 550 students, Sasse says, have enrolled for the fall, bringing Midland’s projected enrollment up to about 900. Before the recession, the college’s enrollment peaked at 1,100 but often hovered, with relative institutional health, around 900.

“We’re being mindful that these students chose to come here but understand that Dana lives on for them,” he says. Former Dana students will be housed with the friends they planned to room with, and one home football game may be played on the Dana campus.

Only time will tell whether the future applicants who would have headed to Dana will find a niche at Midland.

Can Colleges Merge?

As the U.S. economy tumbled two years ago, some experts on private colleges started to foresee an era of mergers. Though there have been some mergers and partnerships, the killer wave hasn’t hit the shore and some experts aren’t sure it will.

In August 2008, Richard H. Ekman, president of the Council of Independent Colleges, told Inside Higher Ed that “we may be in an environment in which colleges in difficulty are going to be willing to try more ambitious solutions, such as mergers.” Between rising energy costs, institutions’ dependence upon tuition discounts to attract students and the shrinking of donors’ wallets, “circumstances now are more extreme than they have been,” he said.

Today, Ekman isn’t quite as sure. “Mergers are not the magic bullet for most of these situations,” he says. “Some of the places that can’t distinguish themselves are likely to continue at low quality and in tough financial shape, and some of them are going to close."

David Breneman, a professor at the University of Virginia’s Curry School of Education, says that while the start of this recession, like the start of previous ones over the last few decades, hinted at the possibility of mergers, there haven’t been nearly as many as some anticipated. “I don’t believe there is a huge record of successful mergers in this country,” he says.

“It’s just pure geography. No one wants to give up their campus and I think to successfully merge … you probably need to be in reasonable proximity to one another.” Even the 25 or so miles between Dana and Midland may have proved to be too far. “Why would anybody want to merge with them unless they’re close enough that they can actually make meaningful savings by selling some buildings and integrating the faculty and administration?”

Alice Brown, former president of the Appalachian College Association, wrote last fall in Inside Higher Ed that one small college that she studied (in a project looking at institutions that eventually closed) started off the merger process seeing it as “salvation.” Within two years, administrators from the dominant institution had dismantled most of what was left. Her warning to colleges in dire economic straits: resist "hope" that the institution will make it through, and don't take false comfort in the college's having survived past rough patches.

A senior fellow at the National Association of Independent Colleges and Universities, Jon Fuller, says he doesn’t think mergers are the best way for institutions to collaborate. Instead, he points to regional partnerships like the Claremont Colleges in California and the Five College Consortium in Massachusetts. Twenty private colleges in Wisconsin have come together to consolidate back office functions and have saved millions of dollars.

But for colleges that have already passed the point of searching for efficiencies, mergers are one final hope at keeping the name and traditions alive.

Ekman notes that “there haven’t been too many where two equally struggling institutions decide to join forces as even partners.” As in the case of Dana and Midland, many institutions of that sort that consider a merger do so once it’s too late, and neither institution is able to play a dominant role.

Lucie Lapovsky, a consultant to colleges who has done work for Midland and is a former president of Mercy College, in New York, agrees. “There’s always a clear rationale why one college is seeking out a merger with another,” she says. “Usually in this day and age, one school is stronger than the other.”

Cases in point: the mergers of New York University and Polytechnic University, Fordham University and Marymount College, George Washington University and Mount Vernon College -- all in the last decade or so. In all those instances, the more dominant institution has taken over. Marymount has been dissolved. Mount Vernon is another campus on the other side of Washington, D.C.

“How you merge two cultures is always very challenging,” she says. “It’s a series of compromises and that’s why most mergers don’t work.”

 

 

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