Higher ed M&A: Strategic alliances in a shifting landscape

Higher education in the United States is facing a perfect storm. Fewer students are attending college than in the past. First-time student enrollment has fallen by 8 percent in private four-year institutions and 10 percent in public four-year institutions since its peak in 2010.¹ Community colleges experienced a similar contraction in first-time, full-time student enrollment, with a decline peaking at 21 percent between the spring semesters of 2020 and 2021.² Off campus, questions regarding cost and return on investment are increasingly complex and critical. Student completion rates remain largely unchanged. While the sticker price for college has risen significantly, our research shows that the net cost to attend has increased comparatively less.³ Rising costs and stagnating completion rates: Who is bucking the trend?,” McKinsey, April 2020. That may be cold comfort for students who wish to pursue higher education but find cost to be a barrier.

Alone, these trends are troubling. Together, they are squeezing revenues and intensifying financial pressures for many colleges and universities. To maintain quality without passing growing costs on to a declining student base, institutions must look for other ways to increase efficiency.

In response, a growing number of institutions are joining forces to develop meaningful alliances at scale. These alliances can take many forms, from partnerships and joint ventures to M&A. According to McKinsey analysis, the number of M&A transactions in higher education increased threefold in recent years, from 11 in 2001–05 to 31 in 2016–20. A successful alliance can enhance academic offerings, improve student outcomes, and increase an institution’s financial stability. But not all alliances are successful. In this article, we outline the rising pressures facing higher ed, explore the broad types of partnerships and alliances in the sector, offer important considerations for leaders who are weighing M&A activity, and share insights gleaned from colleges and universities that have engaged in successful alliances.

Declining student enrollment

Colleges and universities face a markedly different landscape today than they did in 2010. Overall, student enrollment and revenues are falling. Inflation has accelerated steadily, pushing operating costs up in recent years. These forces are creating financial pressures for institutions and the students they serve. Whether they threaten the overall financial viability of an institution depends on the size, profile, and funding of the university.

In the years immediately preceding the pandemic (2015 to 2019), institutions with fewer than 10,000 students generally saw their enrollments drop. Schools with fewer than 3,000 students were hit hardest, with an average decline in enrollment of 4.7 percent. Only institutions with a student body greater than 10,000 experienced positive enrollment growth overall (Exhibit 1). This enrollment dynamic is troubling for both institutions and students given the positive impact of a college degree on a student’s employment opportunities, long-term earning potential, and economic mobility.⁴

Many universities have either reached scale or are managing a slow decline.

Compounding these challenges is a looming “demographic cliff” in which enrollment is expected to contract further as the population of prospective students declines in line with birth rates. An 8 percent contraction is anticipated between 2026 and 2030.⁵ Reimagining higher education in the United States,” McKinsey, October 26, 2020.

Partnering for better outcomes

To address student enrollment, outcomes, and financial pressures, a growing number of institutions are exploring a range of alliances, partnerships, mergers, and acquisitions. An institution’s approach to collaboration will depend on its unique strategic goals, capabilities, portfolio, student demographics, and geographic position. We outline the available options and offer examples of successful partnerships and alliances.

Through a variety of models, institutions can partner to provide students with new academic opportunities and improved experiences, often in a more efficient and cost-effective manner. These partnership and alliance models can take many forms, including the following:

Practice-sharing cohorts develop and share best practices among a group of institutions. The Association of Catholic Colleges and Universities (ACCU), the Boston Consortium for Higher Education (TBC), and the Postsecondary Value Commission are examples of such cohorts. TBC’s Communities of Practice serve as forums for discussion, support, information, and problem solving. The member institutions of TBC (including the College of the Holy Cross, Harvard University, and Massachusetts Institute of Technology [MIT]) share best practices, brainstorm ideas for new shared services and contracts for cost savings, and deepen collegial relationships through collaboration. The ACCU is designed to support Catholic higher education by facilitating idea exchanging, capability building, networking, and other cooperative initiatives among its members.
Program reciprocity refers to shared programming that expands offerings for students and faculty. For example, the Five College Consortium is a partnership among Amherst College, Hampshire College, Mount Holyoke College, Smith College, and the University of Massachusetts Amherst. In some cases, institutions create connected or dual-degree programs. The Georgia Institute of Technology’s Dual Degree Engineering Pathway Program is a partnership between Georgia Tech, a leading engineering institution, and a range of local historically Black colleges and universities (HBCUs), liberal arts institutions, and community colleges.
Research collaboration involves the sharing of research agendas and resources. For example, Carnegie Mellon University partners with government, industry, and educational institutions—including the University of Pittsburgh, Pennsylvania State University, and West Virginia University—on its Metro21: Smart Cities Institute to research solutions to urbanization challenges. The Singapore-MIT Alliance for Research and Technology, a partnership between MIT and the National Research Foundation of Singapore, is MIT’s largest international research program and its first center outside of the United States. The University of California, Berkeley’s Peder Sather Center for Advanced Study aims to foster research collaborations with a consortium of Norwegian institutions, including BI Norwegian Business School, the Norwegian School of Economics, and the University of Oslo.
A joint venture (JV) is the sharing of intellectual property, staffing, and investment to launch a new program or campus. A well-known JV is edX, a joint venture between MIT and Harvard designed to offer an open-source platform and online courses for students and faculty worldwide. The venture has since been sold to edtech firm 2U. Duke Kunshan University, a JV between Duke University and Wuhan University, offers a range of academic programs and conferences for students from China and throughout the world. The JV program allows all Duke undergraduate students who hold Chinese citizenship and are unable to obtain a US study visa to earn a four-year bachelor’s degree based in the liberal arts and sciences.
Integrated services and programming consortiums involve the sharing of costs and infrastructure to improve programming and reduce outlays. Examples include the Wisconsin Association of Independent Colleges and Universities and the Claremont Colleges—five contiguous liberal arts colleges and two graduate schools in Southern California that have integrated services and infrastructure. And Pennsylvania’s State System of Higher Education launched a shared-services center to improve efficiencies and reduce costs across human resources, procurement, data analytics, information technology, finance, and labor relations.
Full M&A results in a combined new entity and touches governance, programming, costs, and infrastructure. Northeastern University’s merger with Mills College and Boston University’s merger with Wheelock College are two examples. Delaware State University’s acquisition of Wesley College is another noteworthy example (see sidebar “Delaware State University acquires Wesley College”).

Delaware State University acquires Wesley College

When Dr. Tony Allen assumed the role of president of Delaware State University (DSU) in January 2020, his first call was to the president of Wesley College, a 147-year-old liberal arts college down the road that President Allen heard was seeking a strategic partnership. After a few conversations, the COVID-19 pandemic hit. President Allen spent the early days of the pandemic explaining why a partnership was a good idea at this seemingly inopportune time.

On the surface, Wesley was interesting for three reasons: the institutions shared similar student profiles; Wesley’s health science programs were well regarded; and Wesley was situated in downtown Dover, close to DSU and in an area of Dover that had a lot at stake should Wesley close its doors.

After signing a letter of intent, DSU spent significant time performing due diligence. The team sought to better understand what capabilities and assets Wesley could bring to DSU students, as well as how Wesley operated. DSU addressed several crucial questions, including what organizational structure would best sustain the alliance; how an alliance would affect faculty, staff, and talent overall; and how an alliance could honor Wesley’s strong tradition of success in Division III athletics. The team also spent time considering the needs of the Dover community and how an alliance could best serve the economy and residents of Dover.

For President Allen, the transaction was more than an acquisition: “It was a transformative moment for Delaware State.” It allowed President Allen to demonstrate to his team that they could do big things and transform DSU as a whole. Looking back, he notes that the acquisition was also “a lesson in what’s possible, even if you are coming from a low-resource institution that does not have a history of being part of these types of transactions.”

Today, with enrollment at its highest, DSU is one of the country’s growing public historically Black colleges and universities. DSU is now the school of choice for students of color in Delaware; for the state of Delaware, the transaction meant nearly $350 million in economic impact.¹

Each of these models comes with unique benefits. For example, cross-university collaborations can meaningfully affect how institutions operate and serve students. Institutions that share services and use their scale to consolidate buying power operate more efficiently. Consider the 23 member institutions of the Wisconsin Association of Independent Colleges and Universities, which together have launched more than 45 cost-saving programs and conserved more than $230 million.⁶

Institutions that partner can also expand their academic offerings in key areas. For example, liberal arts–focused HBCUs within the Atlanta University Center Consortium maintain a partnership with Georgia Tech to allow students to engage in science, technology, engineering, and mathematics (STEM) coursework and earn a joint degree from both institutions. Through collaboration, institutions can also improve student experiences and outcomes. For instance, Boston College’s recent integration with Pine Manor Institute for Student Success aims to increase access for underrepresented and first-generation students.

Each of these models also comes with unique challenges. For example, the need to agree on governance models and ownership of new intellectual property can make JVs challenging to negotiate and operate. More broadly, academia is built on a foundation of institutional pride, academic freedom, and independence in decision making, often at the individual program level. Some of that autonomy can be sacrificed when schools align. However, the benefits of improved access and outcomes for students, along with scale and efficiency for institutions, can outweigh these drawbacks.

Each of these models comes with unique benefits. For example, cross-university collaborations can meaningfully affect how institutions operate and serve students.

Mergers and acquisitions

While institutions have a range of collaborative options available to them, the most transformative opportunities typically occur through M&A. In higher education, M&A activity has almost doubled, with an average of six transactions per year since 2011 (Exhibit 2).

M&A activity in higher education has almost doubled in recent years.

Because of the extraordinary potential associated with M&A and its growth in popularity, we have chosen to focus on M&A throughout the remainder of this article. However, many of our insights can be broadly applied to other partnership models.

M&A can take multiple forms, such as the traditional merging of two individual institutions into one or the absorption of one institution into another. A third construct involves the broader consolidation of multiple institutions across a university system. Regardless of form, properly planned and executed M&A can yield real benefits for both solvent and struggling institutions, as well as for students. The strategic benefits for solvent institutions include complementary academic programming and research, expanded geographic presence and footprint, the acceleration of new capabilities (such as online learning), enhanced and more-efficient shared-service offerings (for example, optimized administrative services), and a broader range of student opportunities (such as dual degrees and vocational programs). When institutions acquire schools with more diverse student bases, they can also reach diversity and inclusion goals much faster than through organic programs alone. For struggling institutions, M&A can be a lifeline to address operational challenges, ensure financial stability, and expand educational access.

For students, M&A can have a transformative impact on outcomes and cost. When Delaware State University acquired Wesley College in July 2021, tuition for Wesley students decreased by 74 percent for Delaware residents and 37 percent for non-Delaware residents.⁷ In the state of Georgia, system consolidation, coupled with a strategic investment in academic-support services, has increased on-time graduation rates by 29 percent without negatively affecting operating costs.⁸

Given M&A’s transformative potential, it’s no surprise that it is top of mind for university presidents. Inside Higher Ed’s 2023 survey of college and university presidents found that presidents are twice as likely to say they are at least “somewhat” likely to acquire another institution in the next five years than to say they will be acquired or merge into another college. More than a quarter of presidents think their institution should consider merging with another college or university in the next five years.⁹

What can go wrong: Challenges associated with M&A

In spite of their clear benefits, mergers and acquisitions are difficult to execute. Across industries, 70 percent of mergers fail to deliver on their strategic objectives,¹⁰ Where mergers go wrong,” McKinsey Quarterly, May 1, 2004. and higher ed is no exception. Our research shows that since 2005, 85 percent of mergers involving institutions with more than 1,000 students experienced lower net growth in tuition revenue, and 60 percent experienced overall declines in enrollment. Student retention rates did not fare much better, with more than half of large-scale mergers resulting in declines in retention rates (Exhibit 3).

Mergers are notoriously difficult to execute in most industries, and higher education is no exception.

Although mergers in higher ed face similar failure rates and challenges as other sectors do, they also face some unique obstacles, including the following:

Misaligned objectives. For example, one partner may be seeking to preserve its learning community, while the other is looking for real estate.
Inexperienced negotiators. Given the relatively small number of mergers within higher education prior to 2011, a majority of university leaders and administrators have not had the opportunity to build the requisite skill set and experience in M&A deal creation and execution.
Ad hoc approach to finding a partner. Most M&A activity in higher education comes about as a result of ad hoc personal networks rather than a proactive, systematic process.
Insufficient due diligence. Cursory due diligence can overlook hidden costs, such as deferred maintenance, outdated IT systems, and different compensation structures.
Inadequate attention to integration and change management. Cultural and operational change is extremely challenging. Institutions often underestimate the complexity and planning required to integrate not just systems and teams but also culture, mission, and student experience.
Complex stakeholder dynamics. M&A in higher ed can require approval from public and private governance bodies and accreditors in addition to buy-in from faculty, staff, alumni, and donors.

These challenges can also plague partnership and alliance models other than M&A. Universities and colleges that understand the challenges are better positioned to realize their strategic goals. With a clear lens on the obstacles that are specific to higher ed, universities have a better chance of planning for, managing, and overcoming them.

How to get M&A right

Even in the presence of potential challenges, partnerships and M&A can be worth pursuing within higher education. A number of leading institutions are approaching them from a position of strength and finding success. When done well, M&A can have transformative impact for institutions and the students they serve. We identified three steps that university leaders can consider to help ensure that M&A activities deliver upon their strategic promise and value¹¹:

1. Define a starting position and clear goals

M&A strategy hinges on having a clear understanding of how an alliance or merger will create value for the institution and its many stakeholders, such as students, faculty, staff, alumni, donors, and the surrounding community. In our experience, institutions embarking on an M&A journey typically start from one of the following places:

National or regional anchors with strong financial positioning. For these institutions, goals can include entering into a new strategic geography, acquiring real estate to fuel growth, or accelerating strategic capability building (such as online-learning programming). For example, acquiring the Thunderbird School of Management allowed Arizona State University to quickly establish and accelerate a signature program.
Regional or sector-focused (such as healthcare) institutions. Goals can include adding complementary academic programs or research departments to the institution’s academic portfolio, building economies of scale to strengthen regional position and reduce costs, or building the institution’s brand to reach new student segments. For example, the merger between St. Joseph’s University and the University of the Sciences led to more programs in sought-after health and science fields, expansion of the university’s footprint with state-of-the-art facilities, endowment growth of half a billion dollars, and the combination of two alumni networks to total nearly 100,000 graduates.
Regional or local institutions struggling to achieve financial sustainability. In this case, the overarching goal is most often a proactive pursuit of strategic acquirers to stave off debilitating cost reductions, closure, or bankruptcy. The recent consolidation of public universities in Pennsylvania offers an example. Bloomsburg, Lock Haven, and Mansfield Universities in northeastern Pennsylvania combined to become the Commonwealth University of Pennsylvania, while California, Clarion, and Edinboro Universities in the western part of the state combined to become Pennsylvania Western University.
Statewide systems looking to integrate institutions. Here, goals most often include achieving cost savings and strengthening student outcomes through enhanced programming and opportunities that often lead to higher graduation rates. An example is the University System of Georgia.

After leaders identify a tangible starting position and value creation goals, they can weigh those potential outcomes with the degree of difficulty the institution can anticipate in achieving them.

2. Conduct sweeping scans and due diligence

Once an institution decides to investigate a strategic merger, the next step is typically a structured scan of potential partners that could help the institution achieve its strategic objectives. Institutions and their boards can assess potential partners by stage-gating several strategic and institution-specific factors, such as alignment across strategic, financial, and operational objectives. Another often overlooked factor for consideration is mission and cultural alignment, which can prove critical to ensuring the sustainability of an integration. External factors—such as regulatory and accrediting body considerations—are also important when considering the viability of a potential transaction.

After an institution identifies a potential target or targets, it can undertake due diligence to weigh a partner’s fit. For some institutions, diligence may help narrow a lengthy list of potential partners. For others, it may help validate one partner. A range of considerations can inform an institution’s diligence efforts. In our experience, key areas include academic and strategic programming planning, expected economics, culture and change management, university talent and organizational design structure, and integration management and governance to facilitate the transaction. In the end, this exercise can provide clarity on fit and the probability of a successful, sustainable alliance.

Are you ready to pursue a merger?

To get started, ask yourself and your leadership team the following questions:

Do we have a clear strategic plan with specific objectives to guide what our institution says “yes” to and, more important, what it says “no” to?
Have we mapped out the investments needed to achieve our strategy? Are we clear on what is best built in-house versus acquired via partnership or M&A?
Have we conducted a structured, thorough scan of potential partners, including those outside the obvious or proximate?
Have we filtered potential partners for strategic, mission, and cultural alignment?
Have we fully considered the financial implications, including potential unfunded liabilities (for example, deferred maintenance and potential legal implications)?
Have we thoroughly investigated potential regulatory and accreditor constraints?
Have we sought input from staff, student, and alumni stakeholders?
Have we considered the impact on the local community and how the public and media may respond?
Do we have a clear “alliance hypothesis” that defines what success looks like for this new partnership, including how the combined entity would equal more than the sum of its parts?
Have we mapped out how the combined entity would be organized, including the governance structure?

When an institution settles on a target, leadership can test its readiness for M&A by answering ten questions (see sidebar “Are you ready to pursue a merger?”).

3. Plan and prepare the implementation infrastructure

In our experience, the most successful institutions work through a range of foundational activities prior to a merger. This preparation spans regulatory and compliance considerations (such as accreditation, state, and federal requirements) as well as the practicalities needed to ensure the partnership is a success. In our experience, institutions have a tendency to zero in on what must be done to complete the transaction and get to “day one.” But what happens after day one is equally important to ensure the institution is prepared to successfully execute its plans and capture the strategic value that the transaction was expected to create.

A structured planning effort can help an institution achieve these strategic goals, encourage productive stakeholder engagement, and establish the foundation for ongoing stakeholder management. Planning that is inclusive of students, faculty, administration, and other university stakeholders leads to better plans and better implementation. Putting in place a comprehensive implementation infrastructure ensures the institution is prepared to implement merger-related plans in the near and long term, after the deal closes. As institutions and their boards prepare to bring their partnership to life, focusing on four core domains can help guide planning and ongoing management of the deal:

Integration management and governance, which focuses on the overall approach to integration, including timeline, infrastructure, and process governance. Of equal importance is identifying and selecting the right integration leaders to represent the merging institutions. In our experience, preparing and upskilling these leaders to step into their crucial roles and navigate a high-stakes integration is crucial¹² Equipping leaders for merger integration success,” McKinsey, July 9, 2018. because most leaders have limited integration experience.
University planning, goal setting, and goal realization, which focuses on establishing a strategy to support the future operating model of the combined institution. This involves deploying functional planning teams in the following key areas: academics, research, enrollment, student affairs, administration (such as finance, legal, risk, and regulations), and operations (such as facilities and safety). In working through this domain, successful institutions seek to go beyond the details of the deal model and thoroughly assess the full potential of synergies for the combined institution.
University talent and organizational design structure, which includes establishing the desired operating model for the combined institution and which must be informed by the faculty, union, and university labor considerations that are unique to each institution. In our experience, aligning talent retention priorities with the combined institution’s aspirations in strategic areas is an important exercise.
Culture, communications, and change management, which focuses on addressing potential cultural roadblocks resulting from the integration of stakeholders from both institutions, engaging university stakeholders with meaningful messages throughout the integration process, and employing the organizational change-management measures needed to sustain the integration. Higher-education M&A activity involves engaging and informing a particularly unique and complex set of internal stakeholders (such as students, faculty, and staff) and external stakeholders (such as parents, alumni, and state and federal accrediting bodies) throughout the course of an integration. In our experience, the most successful integration leaders develop a regular cadence of clear messages tailored and delivered to each set of university stakeholders. This approach to consistent and candid communication is one piece of the overall culture puzzle that an institution will need to address, given the importance culture plays in defining an institution and affecting the overall success of a transaction. It’s critically important to make intentional efforts to understand each organization’s culture and meaningfully build the culture of the combined institution both before and after the deal closes.

Putting in place a comprehensive implementation infrastructure ensures the institution is prepared to implement merger-related plans in the near and long term.

In our experience, developing a master plan prior to the close of the transaction can help guide integration efforts. This plan reflects all key integration activities and identifies tasks that need to be completed across each of the four domains. A centralized resource, the master plan is a living document that tracks departmental and functional progress and can help ensure an integration’s long-term success.

To manage falling enrollments and revenues and rising costs, colleges and universities are pursuing a range of alliance options. Regardless of format, alliances share the overarching goals of helping institutions improve student access, experiences, and outcomes, while weathering a changing financial landscape. Some will fail. Those who understand the M&A landscape and take the necessary steps can succeed. How M&A will remake the landscape of higher ed in the United States remains to be seen. But one thing is clear: institutions seeking partnerships, alliances, and mergers are here to stay.

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