Fundamentals of Consolidation in U.S. Higher Education

Across the past decade, institutional leaders and industry observers alike have predicted mass consolidation of the higher education industry in the United States, citing an oversupply of institutions and a shrinking pipeline of traditional college-aged students. The COVID-19 pandemic has amplified these predictions, as it has strained institutional finances and further disrupted the student pipeline. But are these predictions sound? And pundits aside, can M&A help institutions fulfill their missions and strengthen their financial resiliency in the face of changing market forces?

EAB experts have conducted an extensive analysis of M&A transactions across the past decade and recently held a webinar to share the fundamentals of consolidation in the higher education industry. Whether you’re actively considering consolidation or not, these takeaways will help prepare you and other leaders at your institution to accurately respond to board, legislature, and other stakeholder inquiries around potential M&A activity.

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Review the key takeaways

1. Understand the macro-industry conditions driving interest in M&A, and what parts of the industry are most ripe for consolidation

Stressed institutional finances and concerns over shrinking demographics are driving interest in M&A.

Although deals sometimes involve residential undergraduate programs, M&A activity has been disproportionately concentrated in the adult and graduate market. As the adult learner market has grown more national and increasingly virtual, some institutions have found greater opportunities to lower costs and increase enrollment through M&A. In contrast, the fixed costs of the residential experience (e.g., facilities, place-bound faculty and staff) and geographic constraints can limit M&A benefits and opportunities in the traditional residential space.

2. Learn what types of M&A activities are most likely to succeed and fail in today’s environment

Few deals have involved bailing out struggling institutions, or mergers between similarly positioned institutions. Most M&A opportunities have taken place through state-mandated consolidation, buying access into new markets, or purchasing for-profits. We expect these market trends to continue into the next decade, though policy changes may create new incentives or barriers to consolidation.

3. Level-set expectations with lessons from institutions who have pursued M&A activity

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  Anticipate high implementation costs

  These costs stem from legal and consulting fees for regulatory, due diligence, and integration activities; staff time spent on process and technology integration; and external or internal support creating a unified brand.

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  Expect only marginal enrollment growth

  And, don’t expect significant cost savings. M&A activities are rarely immediately margin-positive.

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  Recognize M&As don't typically address higher ed's most pressing challenges

  For instance, it won’t typically improve affordability or restoring public value in our institutions, though they can help address unserved programmatic demands in our communities (i.e., helping region meet demand for health professionals).

4. Consider alternatives to M&A to scale costs and grow resources without losing brand identity

Partnerships provide promising options for institutions looking to lower costs and tap new revenue sources.

Simultaneously, these inter-institutional partnerships (e.g., strategic alliances, alternative partnership pathways) better protect institutional brand identity and autonomy than M&A. Evaluate the benefits of partnering with other institutions through consortia, strategic alliances, joint ventures, or private systems before fully merging or acquiring institutions.