Mergers and Acquisitions: Strategic Questions Every University Leader Should Ask Now – Not When It’s Too Late

Higher Education Mergers - Image of a Compass at Sunset

Higher education mergers are often seen as a sign of personal and institutional defeat, to be avoided at all costs. Yet the truth is that waiting until the last possible moment, when the institution is in full tail spin, is the true sign of failure. The time to be watching for strategic partnerships or opportunities for merger or acquisition—specifically those opportunities that make the institution stronger, not weaker—is always now.

An interview with Ricardo Azziz and Nivine Megahed

Recently, we spoke with Dr. Ricardo Azziz, the Chief Officer, Academic Health & Hospital Affairs, State University of New York (SUNY) System Administration, who oversaw the merger that resulted in Georgia Regents University (now Augusta University), serving as founding president, and with Dr. Nivine Megahed, Ph.D., the President of National Louis University, who oversaw the university's acquisition of Kendall college (a for-profit Laureate Education college). At our upcoming conference Preparing for the Future: Institutional Mergers and Strategic Alliances in Higher Education, Dr. Azziz and Dr. Megahed will be joined by other leaders who have successfully navigated mergers and acquisitions in higher education.

We wanted to ask a few key questions before the event. Here's what Ricardo Azziz and Nivine Megahed shared with us. We hope you will find their perspectives useful and thought-provoking and that you will discuss them with their colleaguees - and bring your colleagues to the upcoming conference to talk with the experts face-to-face.

Lessons from a Merger

Academic Impressions. Ricardo, thank you for joining us. Should university leaders be thinking about opportunities for mergers and partnerships even during times of institutional health?

Ricardo Azziz. All higher education leaders should understand that the business model underlying higher education today, the competitive environment for higher education institutions, the demographics and needs of our students, and the current and future needs of our workplace, are changing. And changing dramatically and rapidly. Institutional leaders need to be able to think proactively and strategically to accommodate these challenges, and be able to continue to offer value and education to our future generations. Although doing so may be uncomfortable in the short run. And although it may mean that the incremental thinking that so often is embraced in higher education today is left aside.

Even though mergers have been proven to enhance the odds of growth, success, and survival for many enterprises in a wide variety of disciplines and societies, mergers in higher education have been generally shunned or only considered as a solution of last resort. For institutions in extremis, if you would. Tragically, many institutions do wait until the last possible moment to consider a merger, when all other options have been exhausted, finances depleted, and political capital drained. And many of them fail to achieve the merger, and either continue as ‘zombie’ higher education institutions, unable to meet the needs of the communities and their students, or simply close.

Instead, mergers should be considered a legitimate proactive strategic tactic. It is no more, or less, than a tactic that should be considered and integrated into strategic planning with the aim of ensuring success, maximizing quality and service, and yielding the best return for students, faculty, and the local community. In fact, the option of merging, either of having another institution merge with one’s own, or of merging with another more substantial institution, should always be considered during the strategic assessment of most institutions. Because if an institution is in a healthy position, perhaps that is the time to expand reach, diversify programs, and enhance its student body, better ensure survival, or a myriad of other reasons, through a well considered merger. And if the future of the institution looks dark, then perhaps even more so.

Many higher-ed leaders believe that considering a merger as a sign of personal and institutional defeat, to be avoided at all costs. Yet the truth is that waiting until the last possible moment, when the institution is in full tail spin, is the true sign of failure. The recent wave of institutional closures after failed merger talks is proof enough.

Academic Impressions. How can institutions approach mergers in ways that involve future planning beyond just a state mandate or the survival of the institution? That is, how should university leaders be thinking about the scenarios that are possible in which the institution emerges from the merger stronger than it went in?

Ricardo Azziz. In order for mergers to be considered proactively, rationally, and fully, it is critical that institutional leaders and, in particular, the governing boards, build consideration of the tactic into their regular strategic planning.

To effect this best:

  1. Governing boards should embrace their generative roles in helping move forward the strategic vision of their institutions, and not just leave this to the institution’s executive leadership.
  2. The exercise should start out with where the institution should be (the strategic envisioning), not where the institution is at the moment. Starting with where the higher education institution is in the present will likely lead to an incremental plan, and not one that is willing to entertain transformative initiatives.
  3. Once the strategic envisioning exercise is completed (and the institution's ‘There!’ is defined), then the assessment of opportunities should include the question “Are there any institutions or their programs that we should merge with or acquire to achieve our vision?” Regardless of whether a merger or acquisition is pursued or not, in this manner institutions can build consideration of mergers into their routine strategic thinking, without having to force the question, and allowing the tactic to serve as an exploratory opportunity.

The supporting role of mergers in strategy can’t be overstated. Means or tactics (like mergers) can sometimes get conflated with ends (strategic direction), and that is not productive. The “urgency” around mergers should focus on developing a strategy within which to consider mergers and other managerial tactics (e.g., loading up on debt, opening new programs or branches), prior to focusing on mergers “before it is too late.”

Academic Impressions. Ricardo, what would you tell leaders of a private institution, based on what you learned during a state system level consolidation?

Most of the lessons learned from the merger of private and of public institutions are interchangeable between sectors. To understand this we should recall that mergers can be subdivided into five stages: the exploratory/consideration, the pre-merger, the merger, the early post-merger, and the late post-merger phases. The process of of exploration and consideration, which includes the identification of a potential partner(s) and the negotiation of the agreement, is the one that varies most between private and public institutions.  However, many public institutions do seek their own mergers and acquisitions (e.g. Purdue University and Kaplan University), as do many private institutions. Likewise, while some mergers of public institutions of higher education in the U.S. have been mandated from a system level, mostly of technical and community colleges with the exception of some of those involving the University System of Georgia, so have mergers of private institutions that are part of a system.

In essence, the lessons provided by merging higher-ed institutions, whether from public or private institutions in the U.S. or even those arising from the international merger experience, are important to all higher education leaders. As example, one commonality, regardless of sector, is what we define as the seven essential elements necessary for merger success.  These seven critical elements for merger success include a committed and understanding governing body, the right leadership, a compelling unifying vision, an appropriate sense of urgency, a robust and redundant communication plan, a strong project management system, and sufficient dedicated resources. Without these elements a merger attempt is likely to fail… regardless of whether the institution is private or public.

To hear more from Dr. Ricardo Azziz:

Lessons from an Acquisition

Academic Impressions. Nivine, thank you. We've been looking forward to this conversation. Thinking back to NLU's acquisition of Kendall College, what was it like to acquire a for-profit college?

Nivine Megahed. It is not uncommon for individuals to wonder what the difference is between acquiring a “for-profit” vs. “not-for-profit” college.  Educational institutions, particularly those similarly accredited, are more alike than different.  But there are some differences that are worth noting.  These include the stakeholder landscape – in the for-profit situation, you not only have to be working closely with faculty, staff, leadership, and the board of the institution, but you also have to be cognizant of owners – corporate or individual, a corporate board and/or investors.  The needs and the motivations of each of these groups vary widely and often conflict.  Navigating the landscape is a complex and delicate process.

The disciplined business approach common in the for-profit sector, in many ways, makes an acquisition easier. Once the decision to sell/close/ an institution is made, the emotional chaos that often ensues within boards and top leadership in not-for-profit environments, is completely absent.  Please note, that I specifically call out the top leadership because within the “rank and file” of an institution the emotional roller coaster is the same regardless of its incorporation status.

The due diligence, regulatory approvals, and all the negotiating required to make a transaction successful are essential for any type of institutional acquisition – for profit or otherwise.

Academic Impressions. Nivine, how did you navigate and manage the difference in cultures?

Nivine Megahed. Understanding cultural similarities and differences is a very important component of due diligence – alignment of values, mission can make or break the integration, and the entity that is doing the “acquiring” better have a clear understanding of the strategic value of the acquisition.  Once you determine that there is alignment in values and mission, there is still much work ahead, because even when there is alignment it doesn’t mean that shared values are “lived” similarly, nor are they ever completely aligned.

At National Louis, we spent a great deal of time training and orienting employees who joined us from Kendall College.  We also listened carefully so we could find language to bridge any differences between the organizations. We deliberately chose to pursue an approach based in “how are we better together” as opposed to “you must become us.”  As an example, Kendall’s focus on artistic professions required us to amplify language around “the passion” in our work.

Academic Impressions. How can university leaders be thinking more opportunistically?

Nivine Megahed. If an institution is looking for opportunities for merger or acquisition, or is open to opportunities for merger and/or acquisition, there are a number of ways to demonstrate interest.

  1. First, you can actually call brokers who manage transactions and share your interest. In these cases, be specific about what types of institutions you would consider or you will be barraged with opportunities that only waste time.
  2. In addition, make the call to fellow presidents, and begin the conversation. With the financial pressures today’s organizations are facing, another president often just needs to feel invited into the conversation about how we partner to “future proof” our organizations.  I have initiated a number of these conversations and have been incredibly surprised by the openness leaders share about their future and their worries. This is really a time when we all need to be thinking outside of the box and looking for solutions to better serve students together.

To hear more from Dr. Nivine Megahed: