The popular adage, “Early is on time … and on time is late,” is key to success in college and university mergers. Many college and university leaders view the merger tool as a last resort option, and too often, college leaders wait to use it until it’s too late.
Evidence of this is illustrated in a study of several failed college mergers in the last four years. In one example, recurring enrollment decline and rising debt led a school to consider finding a suitable merger partner, only to realize its current financial condition prohibited it from being a desirable partner.1 That school’s merger attempt failed, and the school closed. Similarly, another school failed to gain its regional accreditor’s approval2 of the merger because the accreditor was concerned about post-merger financial stability and financial practices. A third school cited concerns about its rising debt, enrollment declines, and questions about its use of endowment and federal pandemic era financial support for this merger failure.3 The school initiating that merger also closed.
Common Merger Failures
Mergers can fail for many reasons, but commonly they fail due to:
- Poor planning and lack of due diligence, which includes flawed or incomplete thinking about the school’s financial condition. This exploration should be strategic and undertaken independently by both schools in the transaction. A school being acquired must carefully consider its desirability as a merger partner.
- Stakeholder resistance is caused by a lack of clear vision, transparency, or effective communication. This includes navigating faculty concerns, alumni dissatisfaction, student concerns, and board conflict.
- Financial and regulatory risks, such as mismanagement of endowment, lack of reserves, rising debt levels, federal regulations, delays, and accrediting agency complications and criteria.
- Cultural clashes, both real and imagined.
- Poor execution and communication leading to delays that can kill the deal (especially when time is of the essence).
How Can Institutions Avoid Challenges Associated With a Failed Merger and/or Related Closure?
Three elements are needed:
1. Strong, Visionary Presidential Leadership
Vision and strong conviction can lead schools to proactively seek partners and solutions that will lead to synergy, growth, and the reputational success that comes from enhanced academic strength and expanded program offerings. Doing this takes vision and time. In his book, “Strategic Mergers in Higher Education,” Ricardo Azziz suggests three years is the minimum time needed to execute a successful college merger. One can deduct from his timeline that it can commonly take four to five years to get past the post-merger stage and another 10 years to complete a post-merger phase where the success of the merger can be fully realized.
Strong visionary leadership will help the school ensure the governing board’s understanding and commitment and the leadership team’s acceptance of the merger opportunity’s benefits. Consistent leadership also can help the institution navigate a long and complicated merger process.
2. Impeccable Internal & External Communication
Constituencies abound in the college and university environment. They all have various views and definitions of success for their school. This fact drives the need for urgent, robust, and consistent communication. When that level of communication is present, an institution can share a clear, widely accepted vision. This communication around a unifying vision can be the difference between a successful, timely merger and failure. That communication should extend to the post-merger environment, where the effects of the merger are no longer hypothetical.
3. Disciplined & Well-Resourced Project Management
Successful and timely mergers result from completing many complex tasks and interactions with the abundant constituencies at two institutions and the related regulatory agencies. When project management is ill-defined and under-resourced, the result can be excessive time stemming from poor execution. Based on the examples, college mergers do not have the luxury of extended time. Appropriate planning can help institutions achieve their goals in the allotted time for the process to be completed.
How Forvis Mazars Can Help
These observations of school mergers show the importance of starting early and how doing so can be critical for merger success. Make sure you know your institutional strengths and weaknesses and understand how potential merger partners perceive those. Pay close attention to communicating a clear vision, delivering impeccable communication, and executing with disciplined project management.
Tackle the complex issues first, such as cultural compatibility, financial vulnerabilities, and administrative systems (HR, IT, financial reporting systems, athletics, student services, etc.). Addressing challenging tasks early and effectively can help you on the path to a successful college merger.
For more information on higher education merger, acquisition, and collaboration services, please reach out to a professional at Forvis Mazars.