College Mergers – Why so rare?

Looking at the situation as an acquirer and as a target


Our recent piece on underperforming Great Plains colleges contained speculation about why college mergers and closures have been rarer than sometimes predicted.  Several readers provided thoughts, about the Great Plains region and generally about US higher education, on why such events were rarer than often thought.  Below, we’ve organized and expanded on some of the reasoning and details.


The Acquirer

First, step in the shoes of the acquiring (surviving) college’s standpoint.  What does a college absorbing another college get for their trouble anyway?


Buying clients?  Businesses often acquire other businesses for their clients, to cross-sell them other products and generally expand sales.  This isn’t possible for colleges because student relationships last a few years and then inevitably end.  So this rationale isn’t applicable.  Rather than buying another school, it’s much easier to work at recruiting high school or adult prospects directly.


If it’s not students, it’s certainly not instructional materials and skills – those are widely available.  What else would an acquirer get?  Real estate and tenured faculty.


Faculty – As we all know, the proportion of college instructors at nonprofit colleges who are full-time and tenured or on a tenure track has been falling for years. (See this informative Inside Higher Ed article from 2019 for context and detail.). Institutions have been reducing their reliance on full-time tenured and tenure-track instructors over time in favor of contingent staff.  We aren’t making a judgment about whether this is good or bad – just that it’s true.  So an institution acquiring another college would be absorbing tenured faculty.  Which it doesn’t want.  Moreover, the tenured faculty may not fit culturally with the acquirer and may have specializations overlapping with the acquirer’s existing staff.  In bloodless commercial terms, universities don’t want tenured faculty and certainly don’t want to pay to take them on.


Real estate – Location, location, location.  Recent acquisitions point to how real estate can make a struggling college attractive to an acquirer.  Unsurprisingly, many recent acquisitions in higher ed have taken place in the New York and San Francisco metro area, with their high real estate prices.


Two New York examples are the University of Bridgeport’s acquisition by three nearby institutions in Connecticut and Bloomfield College’s absorption by Montclair State in New Jersey.  The New Jersey schools sit in tightly built-out areas where buying land for expansion is difficult and expensive.   And if Bridgeport isn’t exactly in the very high-priced parts of southwestern Connecticut, it is close enough that its facilities are still valuable.


Another example is the recent wind-down of Concordia College – New York as an independent organization in the summer of 2021.  Concordia, in pricey Westchester County, was absorbed by nearby Iona College.  In its press release, the Iona announcement immediately jumps to the lead: the facility and acreage the college just obtained.


Another case in point is the acquisition of Mills College by Northeastern in Boston.  Mills is located in the Bay Area, one of the worlds’ most expensive and difficult places to build.  When news of its financial troubles came out, the college commented that it had several merger proposals being discussed, indicating that its location made it a valuable asset. An eastern university expanding its physical plant to California may be unusual — although Northeastern has been busy adding branch campuses nationally and internationally – but the fact that several potential acquirers looked at Mills and liked it and its real estate is not.  Because its land and buildings were so desirable, closing Mills was never really on the table.


Mills College in Oakland. Though near a major highway, Mills’ campus is an attractive oasis in a very built-up area.


But things are different in less densely populated areas.  Land and housing are cheap. The University of Dubuque in Iowa, highlighted in an earlier piece on troubled Great Plains schools, is a case in point.  Who wants these facilities aside from the university?    There is ample empty and farmed land within a bike ride of campus.  Limited salability.



Above: Vacant lots a short bike ride from the University of Dubuque in Iowa. Below: The New Jersey surroundings of Bloomfield College, with no vacant land anywhere near.


The Target


If there are sometimes good reasons for an acquiring college to have interest in pursuing a merger, impediments on the side of the target college potentially being acquired add obstacles.


Incentives – In the for-profit business world, staff at a company being acquired often profit, sometimes handsomely, both through appreciating share price and bonus incentives worked into employment contracts.  The not-for-profit corporate shell under which most private colleges operate has a different corporate basis and a different culture.  While surveying employment contracts of high-level administrators at private institutions is impossible, we’ll venture a guess that none of them  – zero – across the US contain a provision with a generous pay-out if their college is acquired.  And no share ownership exists, obviously, which removes another motivation to be acquired.


The customers don’t care – What about reasoning that your students will benefit from being part of a larger, better resourced educational organization?  Certainly there’s an argument that students would be better served at a school teaching, say, 3,000 instead of just 1,000, to imagine an example.  But again, students are transitory.  Your current students will be gone before the benefits of any merger are felt.


Shared governance – Although tenured faculty hold much less power than a few decades ago, they still exert considerable influence over school governance and can negatively affect how well an institution functions if they decide to be recalcitrant and get their backs up.  And faculty have no incentives to support a merger with another institution.  To compound things, any college potentially being acquired will have been experiencing years of difficulties, fraying the partnership of administration with faculty.  Faculty get nothing from a deal and often have antagonistic relationships with their administration in these situations.


Who benefits most directly from a non-profit organization?  Non-profits are of course formed to serve the public interest.  The public interest is widely-spread and diffuse, though.  So who directly benefits from a non-profit flourishing?  The employees of that organization; they are the direct beneficiaries.  This expands on the point about shared governance.  It isn’t just the faculty that have nothing to gain from a merger.  Many staff at a troubled college would – logically – see only downside from being acquired.  So even if some hard-headed president decided it was necessary, to execute the mergers, they would need to rely on an organization filled with people opposed to any deal based on their own self-interest.  Put this way, it’s a wonder that any deals get done at all.


A whimper, not a bang


The transitory nature of student/college relationships combined with the lack of incentives for high-level administrators and the fact that lower-level staff and faculty are disincentivized to support any merger sets a high bar for any transactions to actually get done.  When they are, mergers that actually take place point to land and real estate being a major motivator, often in a situation where the target college is in dire straits.  This is all coupled with the fact that most institutions are incorporated as non-profits with the façade of shared governance still lumbering on – tempting to compare this situation with Rome’s Senate in the time of the first emperors – and it’s likely that failing colleges will fade away instead of being acquired and absorbed in one fell swoop.  If this picture is true, colleges will mostly end with a whimper, not a bang.


A recent news item nicely illustrates the situation.  One of the nation’s few private 2-year programs, Chatfield College, recently decided to suspend its degree program due to declining enrollment.  Located in farm country east of Cincinnati, Chatfield’s real estate value is clearly limited.  Despite the fact that its enrollment has fallen from about 250 total students in 2010 to 100 now, this deterioration has not led it to merge or close, but to keep operating and providing non-degree training classes and student support. 


Those interested in reading more on this general topic can look at TIAA’s impressively detailed overview of higher ed mergers from 2017, Mergers in Higher Education. The opening is bland but the coverage of risk factors for closure and the overview of merger activity presents valuable research.  Interestingly, though, when the authors turn to recent mergers, they focus on government-sponsored university network consolidation, specifically looking at Georgia’s significant reduction of public campuses, instead of direct acquisitions or mergers of private institutions. This suggests that consolidations spearheaded by state legislatures may be the real place to keep an eye on.