Willamette Announces Another Merger Deal

Just three years ago, Willamette University, a private liberal arts college in Salem, Ore., announced plans to acquire the Claremont School of Theology. That process is still underway, with Claremont so far unable to find a buyer for its California campus and regulatory approval pending.

Despite already managing one complex merger process, Willamette yesterday announced plans to begin another -- this time with the Pacific Northwest College of Art, a private institution in Oregon focused on professional art and design education.

Based in Portland, Pacific Northwest College of Art is located approximately 45 miles from Willamette’s main campus. The art college, like many small and highly specialized institutions nationally, has faced significant financial challenges in recent years and struggled to grow its student enrollment. It has also been negatively impacted financially by the COVID-19 pandemic.

Pacific Northwest College of Art currently enrolls 647 students and has 121 faculty members, according to its website. Willamette reports that it currently enrolls a total of 2,179 students and has 247 faculty members.

The art college's Board of Governors and senior leadership examined a wide range of options that would maintain the institution's viability, said Scott Musch, chair of the PNCA board, in an email.

“The decision by PNCA to enter into discussions with Willamette was intentional and strategic,” Musch said. “The board was decisive in making the determination that this path was the best one forward for the college’s future.”

Discussions about a possible merger between Willamette and Pacific Northwest College of Art began seven months ago, said Musch. The colleges had for several years discussed the possibility of beginning shared services agreements but realized in the past year that a "deeper level of integration made sense for both of us," said Stephen Thorsett, president of Willamette University, in a telephone interview. 

Under the merger agreement, the Pacific Northwest College of Art will become part of Willamette University but will retain its name, identity and campus in Portland. The college will operate largely independently of the university.

“We don’t have a single overarching governance structure for the whole university,” Thorsett said. Willamette currently has three colleges: an undergraduate college of arts and sciences, a law school and a graduate school. All have autonomy over, for example, local budget allocation and faculty hiring and promotion decisions.

This decentralized management structure “is a real strength, because each faculty can create its own culture,” Thorsett said.

Some program overlap exists between the art college and Willamette, but Thorsett does not anticipate any faculty layoffs at either institution. He added there would be no staff changes for at least a year -- the earliest the merger agreement would be approved is early 2021.

No money will be exchanged as part of the agreement, said Thorsett. When the Pacific Northwest College of Art joins Willamette, the university will take over both the assets and liabilities of the art college, including existing debt. Though the Pacific Northwest College of Art is struggling financially as a standalone institution, Thorsett projects that it will be cash positive in its first year as part of Willamette.

"They have enough tuition and gift revenue to support their operations and contribute to the general overhead of running the university," said Thorsett. "That's partly because the merger allows the elimination of duplicate costs. You only need one audit every year.  Insurance is less expensive for the combined organization. There are no longer separate accreditation fees. You don't need two full-time Title IX officers. Although you still need student support, you don't need the same structures." 

The art college had more than $19 million in long-term debt at the end of its 2018 fiscal year, according to its most recently available audit. It reported about $14.3 million in revenue and $16.5 million in total expenses that year.

Willamette recorded $96.5 million in revenue versus $93 million in expenses that same year.

On social media, initial reactions to the announcement were mixed. Some Pacific Northwest College of Art students questioned how the deal would benefit them and worried about the long-term impact of the merger on their institution's identity and culture. 

Both Musch and Thorsett acknowledged many questions exist about how the merger will work. At the Pacific Northwest College of Art, an email sent to students announced the plans yesterday morning. Later in the afternoon, leaders held a virtual Q&A session to answer questions.

“There are planned departmental meetings being hosted by faculty over the next several days to have one-on-one conversations with students and their cohorts,” Musch said.

In public messaging on the agreement, both the Pacific Northwest College of Art and Willamette signaled that little will change for PNCA students, at least initially. They stressed the college will retain its identity but students will have access to better support services, counseling and career planning, as well as access to a wider liberal arts curriculum that could make students more attractive to potential employers. Both institutions referenced the potential for enhanced collaboration, including the possibility of jointly developing new degree programs in areas such as arts management, exploring remote instruction options, or enabling students to divide their studies between the two campuses.  

“The combined community will continue to uphold the hallmarks of place and the social capital of each institution -- including creativity and culture in Portland and policymaking and government in Salem,” said a fact sheet on the agreement published by the Pacific Northwest College of Art.

“For PNCA students, Willamette offers a much great curricular breadth in areas like languages, the humanities and social sciences, and computational and data science, as well as new opportunities for collaborative work with the performing arts,” said the fact sheet. “For Willamette students, PNCA offers substantially broader opportunities in the fine arts, design and visual studies.”

Willamette began offering the first college-level arts programs in the Northwest in 1860. The institution’s College of Arts and Sciences offers undergraduate programs in the studio arts, theater, music and art history. Pacific Northwest College of Art, founded in 1909 as the Museum Art School, is known for its professional undergraduate and graduate education in art and design

‘A Unique Opportunity Right Now to Acquire’

The moment appears to be right for significant merger-and-acquisition activity in both the art college market and higher education more broadly. When the fit is right, colleges and universities are signing deals.

“It appears that the fit between Willamette and PNCA is a good one,” said Deborah Obalil, president and executive director of the Association of Independent Colleges of Art and Design, in an email. “While Willamette has some existing art programs, they appear to only offer Bachelor of Art degrees. PNCA will bring a much wider array of art and design programs to the combined institution, with the professional degree, Bachelor of Fine Arts, and graduate degrees in these fields not previously available at Willamette.”

Time will tell how the merger will actually impact the Pacific Northwest College of Art, but it is a positive sign that public messaging about the agreement says the college will retain its independence, Obalil said.

“The proposed autonomy that PNCA will maintain will be good for serious art and design students, as well as faculty, knowing that the culture, disciplinary breadth and rigor of an independent college can be maintained with a focus on art and design,” she said.

As typically small and highly specialized institutions, many independent art colleges have struggled with declining enrollment in recent years. Several have successfully merged with larger institutions, but some shut down after failing to convince bigger institutions their finances are stable enough to make them attractive merger targets. The Oregon College of Art and Craft, for example, closed in May 2019 after merger talks with the Pacific Northwest College of Art and later Portland State University fell apart.

The COVID-19 pandemic has impacted all of higher education significantly, and smaller art and design-focused colleges are no different, Obalil said.

“For those art and design colleges that have been forced by circumstances to remain fully remote for the semester, it is particularly challenging given the hands-on nature of most art and design courses,” she said. “For those that have been able to reopen, the additional expenses incurred to create a safe learning environment have been significant.”

Discussions between leaders of the Pacific Northwest College of Art and Willamette began before COVID-19 started to significantly impact higher education in the U.S., said Thorsett, Willamette's president. The pandemic made discussions a little more challenging since board members couldn’t sit in the same room together, but it didn’t speed or slow down the process, he said.

At other institutions, it is possible the impact of COVID-19 is accelerating merger decisions, said Kasia Lundy, managing director at the consulting firm EY-Parthenon’s education practice. Historical data for the past decade suggest five to ten university or college mergers are typically completed per year. So far this year, four mergers have been completed and another 12 announced, she said. 

“There is an uptick. Is it huge? No, but there is an uptick,” Lundy said. “Based on conversations we are having, anyone who was already financially challenged has been thinking about this."

Many college presidents are exploring different approaches to relieve the financial pressure their institutions are under right now, said David Attis, managing director of research at the consulting firm EAB. Enrollment pressure was high at smaller institutions before the pandemic. Now it has been exacerbated, he said.

For smaller colleges in dire financial health, a merger can offer financial stability and keep the lights on. But mergers hold benefits for both parties -- institutions with the resources to take on another college are typically looking to grow their enrollment quickly, without the need to build new programs from scratch, said Attis. 

Lundy and Attis agreed, however, that it is unusual for an institution to be managing multiple merger processes at once. 

"There's huge logistical complexity in executing a merger, so there are probably some risks in trying to do them too close together or even at the same time. But I think some people would argue that there is a unique opportunity right now to acquire institutions that might not exist in another year or two or will be acquired by someone else," said Attis. "There might be a sense of urgency around pulling this together."

Thorsett acknowledges managing two merger processes will be a challenge. But he feels confident Willamette's leadership team can pull it off.

“We’ve learned a lot from Claremont,” he said. “We know how to approach this planning process now.”