Inside Higher Ed recently offered a webcast on mergers, acquisitions, and partnerships because private colleges can no longer afford to wait until they are in deep financial trouble to look for solutions.
Emily Wadhwani, the senior director for higher education at Fitch, a bond rating agency, believes that the “weak [are] getting weaker.” [1] Anthony P. Carnevale, director of the Center for Higher Education and the Workforce at Georgetown University, puts the condition of higher education more starkly “There really is an arithmetic problem here. There aren’t going to be enough students to go around.” [2] Moreover, as Susan Butrymowicz observed in a 2020 Hechinger Report few agencies will step into the fray to help an institution which is in danger of closing.[3] The question for private colleges and universities facing the full force of shrinking student markets, aggressive price-competition, inflationary increases to their labor costs, and the uncertainties of AI technology is – how can my college or university survive?
Given the many chasing the fewer, private colleges and universities should take immediate steps regarding a merger; an acquisition, defined as being taken over by another entity; or a partnership. Frankly, the cascade of bad news about private institutions of higher education shows that even at the very edge of the demographic cliff is that they cannot find enough students for 2027. As a result, many private colleges will not make good candidates for a merger or a partnership. Their best hope is to be acquired by another institution whose finances are stable and have better penetration into the student market. The waiting till tomorrow game is over for private institution that see severe financial distress in the near future. They need to prepare themselves as a candidate for acquisition, before their finances erode to a state that they are no longer an attractive candidate for acquisition.
If a college wants to be acquired by another entity[4], it needs to do the following.
- Contract with a skilled acquisition specialist who would estimate the value of the college and conduct a comparison financial analysis of interested entities.
- Collect all legal documents, such as, corporation papers, employment contracts, construction contracts, service contracts, faculty handbooks, employee handbooks, property deeds, loan documents with covenants, and the location of corporate minutes.
- Prepare an organization chart.
- Collect copies of most recent catalogues that include all curricular descriptions and student requirements for admission and graduation.
- Copy of a course load matrix.
- Copy of most recent accreditation reports with contacts and next scheduled reviews.
- Unduplicated list of all students by earned credits.
- Copy of all audits for past three years with management reports and related federal reports, such as the federal financial test for financial aid, and any accreditor or federal issues.
- Copy of all I 990 reports.
- Full list of benefits with description of the benefits and contacts.
- List of all insurance contracts including: D&O, liability, property, umbrella, automotive, and any other insurance. List should include against and contacts.
- List of any outstanding law suits with a description of the suit and the status of the suit.
- Description of any zoning or compliance issues with the local government.
- Description of the IT and communication systems and networks, employees and duties, service contracts, and any major issues with the systems.
- List of all buildings with specifications, years of construction and renovations, HVAC systems, communication links, and deferred maintenance.
- Dimensions and layout of the campus.
- Underground networks, water, sewage, communication networks, and any other buried systems.
- List of all automobiles, buses and any other means of transportation with dates of purchase, mileage, latest maintenance, and any other relevant information.
- Description of all major issues that affect the capacity of the college to survive and achieve its goals.
This list may not include everything that is needed when another entity conducts its due diligence. The college should also insist on similar information from the acquiring entity so that is can ensure its students, the community, and governmental offices that the acquisition will serve their needs.
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Fischer, Karin (August 12,2022); “The Shrinking of Higher Ed”; (Retrieved September 30, 2022); The Shrinking of Higher Ed ; Chronicle of Higher Education; Washington, D.C. ↑
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Ibid.; Fisher, Karin; ↑
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Butrymowicz, Sarah (August 4, 2020); “Dozens of colleges closed abruptly in recent years — and efforts to protect students have failed”; Hechinger Report; Dozens of colleges closed abruptly in recent years — and efforts to protect students have failed (nbcnews.com). ↑
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I am using the word entity because the college should consider opportunities more broadly that a traditional private college. ↑