Mergers in Academia: MFA Meets M&A

College mergers are such an unpopular topic that one university trustee, Ranch C. Kimball, felt compelled to write a “How To” guide on mergers for presidents and boards. It reads a bit like an old-school dating guide for relationship-allergic Millennials. Where to even start? He begins with the basics: how to initiate contact with a prospect. You might try an early breakfast meeting at your city’s elite downtown private club. (Catch them before coffee, it’ll give your school an edge.) In-person not your thing? A brief text, “Can we talk in the next day or two?” should convey the message. Want to widen the pool? Try FedEx, overnight delivery, seventy-two letters plus an enclosed, multi-page color information packet. Don’t forget your autograph. If Kimball’s guide sounds like too much hand-holding, it’s not: there are so few “good closures” in higher ed mergers that not many boards feel comfortable mulling over the topic, much less taking the offensive and sending out a FedEx blast to potential partners. Some academics have dismissed school mergers themselves as a fallacy. One study of 55 private not-for-profit college closures since 2016 found that it usually amounts to a fire sale: 41 of the schools actually shut down or liquidated their assets. Kevin Coyne, co-author of the study and Senior Teaching Professor at Emory Business School, was frank about his skepticism: “Nobody would use the word ‘merger’ to describe when a company closes and another company buys its equipment for pennies on the dollar.”


The Year of the Apocalypse

One reason that mergers aren’t very popular in higher education is that there are no golden parachutes for the board: nobody’s walking away with $100 million following a college merger. If anything, their jobs are more at risk. If a merger goes sour, you can expect a quick resignation from the president. And if a merger goes well, what college needs two presidents?


Another hurdle unique to higher ed is the intense regulatory landscape. Any proposed merger has to satisfy three regulatory levels: accreditors, state regulators, and the Department of Education (DOE). If state regulators, for example, think that the merger constitutes a new entity, Title IX funding — the lion’s share of many schools’ revenues — will be pulled until new accreditation is received.


But, obstacles to consolidation aside, an apocalypse is coming for higher education, and it wasn’t 2020. The actual year known among economists as “The Apocalypse” is 2026, the year that the four-year college applicant pool will shrink by almost 280,000 per class, for four consecutive years.


Capacity has never looked more bloated: public colleges have 6.4% excess capacity, growing at about a half a percentage point a year. Private colleges have it even tougher: 12.4% excess capacity and growing at triple the rate of public colleges. And this was before COVID.


But all hope is not lost. A huge part of the problem is that institutions simply wait too long, by which point the situation has turned so desperate that, yes, all they can hope for is a fire sale. Below, we take a look at three recent mergers of the past few years, each initiated at different time points, to make or break its fate.


Berklee Goes BoCo: A Merger of Strength and Opportunity

Few students at the Boston Conservatory of Music could envision themselves at Berklee next door. The Boston Conservatory or “BoCo,” as students call it, was small, elitist, and steeped in the classical tradition of 19th century European conservatories. It had an endowment of $15 million, operating margins of 1.8%, and a total enrollment of roughly 730 students.


Berklee, meanwhile, was mid-sized, careerist, and unmistakably modern: it owns the largest complex of high-end recording studios in the world, and just added the New York-based Power Station to its collection of enviable facilities. It had an endowment of $321.5 million, operating margins of 3.5%, and over 4,000 students. Following the merger, one BoCo student felt compelled to record her ambivalent feelings in a song: “You ditch class so you can get more views on TikTok, while we’re over here deconstructing Bernstein and Bach.”

Still, college leaders viewed their cultural differences as a strength, rather than weakness. Richard Ortner, BoCo’s long-standing president of nearly twenty years, framed the merger as an organic reinvention that showed nothing if not forward-thinking. “We saw each other as neighbors by a happy accident in history doing things that were complementary — not competitive — and we thought, ‘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 distinguished the Berklee-BoCo merger from most of its peers is that both colleges approached the partnership from a position of strength. While BoCo clearly gained long-term security from the umbrella of a much larger financial peer, Berklee enhanced its current offerings by adding a school of dance and one of the best musical theater programs in the world. As a result, BoCo retained its name, board members, faculty, and president (if only for a brief moment: Ortner promised to retire a year later). Berklee paid off BoCo’s outstanding debt ($27 million from former renovations), and increased applications to the conservatory by 50% in three years.


“You’re welcome we saved you from your huge massive debt,” sang Alyssa Payne, a former BoCo student at the newly combined college. “Because now you can go break a leg and be a Rockette.”


Wheelock Weds BU — Practicality Staves off Imminent Death

Not all schools have the luxury of a clairvoyant president who is also about to retire. For Wheelock College, a small liberal arts school in Massachusetts, it watched enrollment dwindle from 1,324 in the fall of 2012 to 1,053 in the fall of 2016, before it hired David Chard, its final president, to save them. Fortunately, the school still had a cushion of $15 million in unrestricted cash, but “every enrollment and financial trend was going in the wrong direction.” Chard understood that the school had, at most, two or three years before closure. Only immediate, definitive action could turn things around.


Leaders went to the white pages: they combed through the list of institutions in the Association of American Universities until they had sixty names to send a request for proposal. They gave schools a two-week timeline to submit letters of intent (ultimately, they received seven proposals). Chard believes this strategy allowed Wheelock to retain some control over the offers and stave off any impression of desperation. “Every one of the proposals was viable,” said Chard. “One in particular was fascinating. They were going to liquidate everything … and the proceeds of the sale was going to be used to build a building on their campus and name scholarships and endowed chairs on behalf of Wheelock.”


But Wheelock wanted more than just a scholarship memorial. It wanted to live on. Boston University was more willing to entertain this desire. In exchange for Wheelock’s property and assets, BU created the Wheelock College of Education and Human Development, a blend of Wheelock’s signature program and its own school of education. Tenured faculty were given the option to join BU (with some title modifications), students were offered a place at BU, and Chard came on as the new dean for the college of education. While there were certainly some grumblers among the student body, most parties agreed it was a “good closing.”


Outraged Student Reacting to the Wheelock — BU Merger

“I do believe in the end we did the right thing,” said Chard. “But, also, I’m the president who closed the college. I’m the president who took a 130-year legacy and decided that we couldn’t make it any longer.”


The Fall of Mount Ida

Mount Ida was a former finishing school for girls that transformed into co-educational college following the surge of Vietnam War vets in the 1970s. Its enrollment always hovered below 1,500, but it fell upon hard times in 2016 following a series of deficit years, declining enrollment, and increasing tuition discounts. By the time it requested a five-year financial forecast in 2016, it could not produce a surplus without leasing back its own former dorms, increasing tuition by 3.1% and 6.1% per year, and handing out tuition discounts of 63.4%.

It was against this grim backdrop that Mount Ida announced in February 2018 that it was considering a merger with Lasell College, another small liberal arts school in Massachusetts. A month later, dissatisfied with the timeline proposed by regulators, they reneged. Students continued touring, professors were extended offers for the fall, and deposits were accepted. In April, the school announced its upcoming closure, with its campus and students getting divvied up among the five-campus University of Massachusetts system, not all of which are chummy, to say the least. UMass Amherst would take the land, UMass Dartmouth the students, and UMass Boston the bitter press.


The condemnation was immediate. State regulators claimed they learned about Mount Ida’s closure through the press. Mark Montigny, a Democratic senator whose district included UMass Dartmouth, was furious that UMass Amherst made off with the real estate while UMass Boston crawled along on a shoestring budget. “I used the word apoplectic,” said Montigny. “This is an institution that has never been given what it deserves. [UMass Amherst] is buying a country club. If this wasn’t a use of taxpayer dollars, I’d find this really funny.”


While any merger or acquisition involving a public institution inherently invites more controversy, emotional tirades aren’t always a given. But Mount Ida committed one of Kimball’s biggest merger “no-no’s:” it played favorites. “Treat each party with respect, and equally,” urges Kimball. “Resist, resist, then resist again the temptation — once you start a proper process — to have a double secret meeting with the Vice Chair of [XYZ] College.”

Mount Ida executed a memorandum of understanding (MOU) with Lasell in 2017, and then continued to entertain interest from UMass Amherst as Plan B. While UMass Amherst may very well have been the only institution able to pick up Mount Ida’s sizeable debt (estimated at $70 million), perhaps a more open process could have avoided the public oversight hearing and PR debacle that followed.


More Normalcy for Higher Ed Mergers

While disputes may arise in corporate mergers, such descent into chaos is less likely. “I think business has developed, maybe because money is on the table, more of a sense of precise, ethical, and legally enforceable requirements that a board must undertake, including the ultimate shareholder vote,” says Chris Gabrieli, chairman of the board of the Massachusetts Department of Education and Senior Partner at Bessemer Venture Partners. It also helps that corporations have a bevy of lawyers, consultants, and experts to turn to.

But attitudes and procedures are changing fast. In August 2019, Higher Ed Consolidation Solutions, the first full-service university and college merger consulting firm, opened its doors. “Will there be more? Yeah, we’re betting on it,” said Brian Weinblatt, the firm’s founder. And among his employees? A veteran of both Mount Ida and Wheelock College.

Even if higher-ed mergers never gain the polish or frequency of their corporate peers, Kimball believes that any board can improve its own experience with a simple mantra: “Let’s turn the porch light on and invite folks in.”


About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.


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