Mergers on the Rise?

As institutions struggle with enrollment and money, more join forces or consider doing so. But sometimes a merger is really more of an absorption.

July 7, 2015
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The same day Sweet Briar College announced its controversial and since-abandoned plan to close, two private New York colleges made public an entirely different plan: a merger.

Union Graduate College is a small college that offers advanced degrees to a steady number of students, and has minimal debt and a balance sheet that is squarely in the black. Yet enrollment, while stable, is quite small -- fewer than 400 full-time students -- and the college doesn’t have enough money to expand as it would like.

Union Graduate was not weak, but it wasn’t necessarily strong enough to continue to remain healthy, and that’s why the president, Laura Schweitzer, urged the college toward the path of merger with Clarkson University, 190 miles away, which was already looking to strengthen its graduate offerings.

Schweitzer believes other colleges should follow suit. Mergers, she says, aren’t as scary as they seem.

“More colleges should really consider this. More boards should really think about how to best serve their mission. It’s not always through just keeping things going,” she offered. “It’s not always self-preservation.”

Financial difficulties, declining enrollments and a shrinking number of high school graduates in multiple U.S. regions -- such as the Midwest and Northeast -- are putting an increasing amount of pressure on colleges, especially those with small enrollments.

Moody’s last year issued a negative outlook for the higher education industry as a whole, and found that 1 in 10 public and private colleges suffers “acute financial distress” because of falling revenues and weak operating performance.

In the wake of Sweet Briar’s highly public closure announcement, and the subsequent blowback and reversal, small and struggling colleges across the country worried about the threat of closure or financial difficulty are looking for ways to avoid such a fate.

As colleges explore methods of survival, many experts say mergers, absorptions, affiliations and partnerships are on the table more now than they have been in the past. In some cases, these mergers are much closer to absorptions, even if they are called mergers.

“If you’re in second class or steerage and the boat’s sinking, you're going to be much more willing to do things you would never have done if the boat stayed afloat,” said Kent Chabotar, former president of Guilford College and an expert and Harvard lecturer on higher education finance and leadership. “You’re going to see an increasing number of institutions in financial trouble reaching out for alternative ways to survive and, unlike the past, radical steps like mergers and acquisitions will be more frequent than they have been.”

Though demographic challenges are steeper now than they have been in recent history, colleges are no strangers to hardships. And mergers, though uncommon, have been practiced for a long time. Fifty years ago, for example, Western Reserve University and the Case Institute of Technology merged to form Case Western Reserve University, an institution that now serves more than 10,000 students.

Clarkson plans to merge with Union Graduate by January. Union Graduate’s governing board will be dissolved -- although Clarkson plans to add a few trustees from the college to its board -- and the college will be called the Clarkson University - Capital Region.

Meanwhile, several other mergers are in the works. The Berklee College of Music last month began exploring a merger with the Boston Conservatory. The Boston institutions already share some faculty and functions, as well as similar missions, but supporters say a merger would allow for shared funds and space and create a powerhouse for performance art education.

Salem State University in Massachusetts is in the final stages of considering a merger with the nearby Montserrat College of Art. Last year Arizona State University and the Thunderbird School of Global Management finalized a merger, after Thunderbird searched for years for an institution willing to take them on. Also last year, George Washington University absorbed the Corcoran School of Art and Design.

“We’re all in a situation where the demographics are not in our favor for institutions that might like to grow, so we’re trying to find ways to be more efficient and ensure we can cover all our financial bases,” said Scott James, vice president for enrollment at Salem State. “Mergers and affiliations are one way to do that.”

Montserrat was struggling financially and with enrollment when it approached Salem State about a possible merger, yet Montserrat’s debt is minimal, its land holdings are attractive and it offers academic programs Salem State doesn’t. Salem State wants to grow its geographical and enrollment footprints, but administrators aren’t sure it has the resources to absorb Montserrat’s programs, its tenured faculty and its nearly 400 students.

“Are any costs associated with this merger offset by gains that we might make in others?” asked James. It’s a question he and other administrators are still exploring. They plan to make a decision by the fall.

James said one of the reasons Salem State is considering a merger with Montserrat is the college’s relative health. Montserrat, he says, was “proactive” in an effort “to avoid a catastrophic situation.” If the college had struggled for years -- like the nearby and recently shuttered Marian Court College -- with too few resources and higher debt, Salem State wouldn’t consider the merger because it would be too risky.

“You have to look ahead. You have to be strategic and thoughtful,” Schweitzer said. “Don’t wait until you’re so weak that you have nothing to give.”

Scale Is Strength

Yet mergers are complicated, and wrapped up in them are fears about institutional priorities and the loss of mission. Alumni often become concerned when their alma mater loses its name as the weaker participant in a merger, and faculty worry their funding will be shifted in a merger or, worse, lost altogether because of redundancy and efficiencies.

Students from Corcoran, for example, have complained about feeling unwelcome on George Washington’s campus. And following Middlebury's acquisition of the Monterey Institute of International Studies in 2010, it took five years for Middlebury to change the institute's name, in part because of concerns about how a new identity might affect morale. 

“There's going to be winners and losers, and if people focus on that it becomes very hard to overcome resistance,” said Richard Kneedler, a higher education consultant and the former president of Franklin & Marshall College, which itself was the result of a merger in the late 1800s.

For every successful merger, there’s another that fell apart because of cultural differences or one institution that was just too weak to be absorbed. New York institutions St. Bonaventure University and Hilbert College, for example, spent two years considering a merger, but scrapped plans earlier this year after they couldn’t agree to terms.

“Mergers are hard to carry out,” said Richard Ekman, president of the Council of Independent Colleges. He added that because of how legally and logistically complicated mergers are, colleges may be more prone to consider partnerships and affiliations.

Back-office partnerships may work better for colleges that are healthy, but looking to save money. Institutions form consortia where the administrative functions -- like financial aid, information technology, purchasing and human resources -- are shared. Yet the college's academic functions and governance structures remain intact.

The relatively new Chicago-based nonprofit TCS Education System, which oversees six colleges, is an example of such a partnership. Since it was founded in 2009, TCS has aimed to cut costs by handling back office services and relying on other economies of scale. And the University of Maine System -- in a move that’s proven controversial among faculty -- is seeking to transition from seven public universities to one university with seven campuses. The hope is the change will, in part, help the cash-strapped system cut costs by combining administrative functions and leveraging scale.

Scale is strength in a volatile environment, said David Attis, senior director of academic research with the Education Advisory Board. Either through mergers or partnerships, small colleges will look to increase their size in coming years.

“Having deeper pockets, having more professional administrative departments” is valuable, Attis said. “In this competitive market, having scale gives you an advantage.”

That’s exactly the lesson Schweitzer learned as president of Union Graduate. The college employs fewer than 50 people -- including faculty members and instructors -- and found it difficult to support the infrastructure required to run a college “on the base of so few students,” Schweitzer said.

Kneedler says that institutions with enrollments below 1,000 students usually run into operational programs. It’s more difficult for them to weather financial hardships than their larger peers.

“You may be able to provide a more complete academic administrative program if you partner closely with another institution,” Kneedler said.

Ken Redd, director of research and policy analysis at the National Association of College and University Business Officers, or NACUBO, said that colleges struggling is “not a new story.”

Yet the reality of flat or declining enrollments, Redd says, is more pressing than it has been in a long time. Per-student funding at public colleges has seen near across-the-board decreases in the U.S. Some states, like Georgia, are mandating mergers in an effort to cut administrative costs and respond to declining enrollments.

An average of five colleges a year have closed the last four years, according to data from the National Center for Education Statistics. Yet if colleges don’t begin to explore options like mergers and affiliations, Redd says the absence of more mergers and affiliations may actually be ominous for higher education and indicate an uptick in closures.

“At some point the numbers are what the numbers are,” Redd said. “If the choice is between survival or closure, any entity, even under a different governing structure, would chose survival.”


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