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Colbeck Capital Management Takes a Look at the Messy World of Mergers and Acquisitions in Higher Education

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Colbeck Capital Management Takes a Look at the Messy World of Mergers and Acquisitions in Higher Education

Photo : Colbeck Capital Management Takes a Look at the Messy World of Mergers and Acquisitions in Higher Education

While it would seem as though 2020 naturally would spell doom for many financial markets, including colleges and universities, it's actually 2026 which poses the great challenge to survival for institutions of higher education. It is 2026 that marks the start of a great shrinkage amongst the applicant pool. Estimated to reduce the pool by 280,000/year for four years, this upcoming reduction means that colleges and universities will be dealing with even greater excess capacity than they are now (currently estimated to be at 6.4% for public colleges and 12.4% for private colleges). Colbeck Capital Management breaks down this problem on their Medium blog Limited Liabilities.

There is no way around it, mergers and acquisitions are going to become a major part of the landscape for higher education, which is why Colbeck Capital Management made it the topic for a recent fall newsletter. Mergers and acquisitions are much more challenging in higher education than in the business world for numerous reasons. One big one, as Colbeck Capital Management points out, is that the merger has to be in accordance with three levels of regulatory bodies: state regulators, accreditors, and the Department of Education. Additionally, mergers and acquisitions tend to lack the support of presidents and the board, because those M&A's that occur in higher ed lack the same payoffs of golden parachutes in the business world, and the president risks losing their job. Oftentimes, without proper planning, mergers and acquisition in higher education can amount to a fire sale and liquidation of a former institution.

The M&A Success Story

The first merger which Colbeck Capital Management takes a look at is one that met with mostly success, creating opportunity and growth for both partners. The merger, between Boston Conservatory of Music (BoCo) and Berklee College of Music paired two very different institutions right next door. BoCo was a traditionalist and small college with just 730 students and an endowment of $15 million. Berklee was a much more modern school than its counterpart and mid-sized with over 4,000 students and an endowment of $321.5 million.

While several students expressed dismay over the merger, the leaders of the colleges saw the union of two different kinds of institutions as a source of strength and innovation. Colbeck Capital Management quotes BoCo's president, Richard Ortner, as saying, "Can't we open this entire world to pioneer all of the new forms and new musical activity that we know is waiting in the wings?"

What made the merger of BoCo and Berklee so different from the typical merger in academia was that both partners entered into the agreement firm in their position and with the strength to back that up. Both schools received real benefits: BoCo in the increased security from a larger financial overwriter, while also maintaining its name, board members, faculty, and even president (though Ortner promised to retire within the year). BoCo also had $27 million in debt from renovations paid off and saw their applications increase by 50% over three years. Berklee was able to greatly increase the caliber of what they offered, adding a dance school as well as one of the most renowned musical theater programs in the country.

Not Everyone Can Plan Ahead for the Perfect Merger

For their next case study, Colbeck Capital Management takes a look at Wheelock College, a small liberal arts school in Massachusetts that ended up joining with Boston University. In 2016, facing shrinking enrollment, the college hired a new president, David Chard, in the hopes that he would save them. But with the writing on the wall, he soon realized that in two or three years the school would face forced closure.

Although the college was in effect facing "imminent death," Chard saw an opportunity to take some control of the situation. They chose sixty names from the Association of American Universities and sent each one a request for a proposal, with two weeks given to submit a letter of intent. In the end, they received seven proposals and found all to be potential solutions. They were able to choose the one that was best for them. This was BU's option which created the Wheelock College of Education and Human Development, offered faculty positions at BU, and students a place there.

Poor Planning Can Mean a Poor Merger

With the final case study, that of Mount Ida, Colbeck Capital Management describes an M&A that was ultimately unsatisfying to everyone. After waiting far too long when facing mounting debt and smaller enrollment, the college announced in 2018 that they would be merging with Lasell College, another liberal arts school. However, they became unhappy with the timeline that the regulators were requiring and went back on the deal. At this time students were still touring, professors were being hired and tuition was deposited until the school announced its closure in April. The entire school was broken up by the Massachusetts public university system, with one campus getting the land and another the students. This led to bad press all around. Mount Ida's inability to make the necessary decisions for itself led to an M&A that no one was happy with.

There is a need to call for the normalization of M&A within academia. As this will be a part of the world of higher education for the foreseeable future, institutions would do well to approach it with some of the detachment and careful planning that goes into those of their corporate counterparts.

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