College officials considering mergers need to have sufficient resources

Mergers and consolidations are important tactics that many colleges should consider in the face of significant declines in enrollment, massive excess capacity and the coming enrollment cliff beginning in 2025, when the college-age population is expected to dramatically drop.

Unfortunately, too many institutions seek the option too late, when their financial and enrollment position has dwindled beyond salvage and their value to a prospective partner is limited at best.

It is critical that governing boards and executive leaders dispassionately and objectively understand the coming higher education landscape and how it may impact their institution. They need to begin to seek partners earlier than they think is warranted.

Ricardo Azziz

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This is most critical for smaller institutions, those with under 5,000 students, for the sake of sustaining their finances and heritage. But it’s also important for larger institutions whose leaders may want to consider a merger, or mergers, to rapidly enhance the competitiveness of their academics, marketing and size.

However, one thing that many leaders tend to forget when considering a merger — they come with costs.

Among the seven essential elements for merger success my co-authors and I reported on in our book “Strategic Mergers in Higher Education,” we noted the need for colleges to have sufficient dedicated resources.

As I speak with leaders looking to explore a merger — either with an institution that they have already identified or are still seeking to identify — the focus is primarily on the political and communication challenges of considering and then undertaking the transaction. But having sufficient dedicated resources should also be at the forefront.

What are merger costs? They are both intangible and tangible.

Intangible costs are many. They include the potential for staff fatigue and stress, campus and local community confusion, negative impacts on the institutional brand, alumni and faculty disaffection, and the threat to leadership trust.

Others are tangible costs.

Some of these costs are impossible to estimate. These include potential impacts on enrollment and fundraising, faculty and staff retention, and the ever-present opportunity cost, whereby the resources and energy invested could perhaps be put into other initiatives (e.g. more marketing, student recruitment, online programming, etc.).

But there are also estimable financial costs — costs which will impact cash flow.

Some of these occur in the premerger phase, including the costs of undertaking thorough due diligence, legal reviews and regulatory filings. Post-merger, some costs are more mundane, such as new signage, uniforms, business cards and letterhead.

Other costs are operational, including the cost of marrying disparate information technology infrastructures and security practices, and establishing a common human resources and payroll system. Still others will address possible employee compensation and promotion and tenure inequalities.

Additional emotional and academic support for incoming students, who may feel dislocated and less prepared in the new campus environment, needs to be considered. The costs of outfitting merged athletic programs, if there are any, are not trivial.

Some costs that should be considered include regular campus celebrations to recognize the exciting potential of the merger and to welcome new partners. It is important that leaders of a merged institution not underestimate the value of celebrating even small wins to foster the sense of oneness or togetherness.

Leaders should also consider the investments in the future of the merged institution. That includes seed funding to foster the development of new educational or research programs, leveraging the expertise and experience of the merged entity’s faculty and staff.

There could also be investments in developing new traditions, while honoring old ones. Capital investments could address deferred maintenance, including upgrades and improvements. And leaders could enhance marketing and branding efforts, capitalizing on the good news that the institution is now bigger and better.

We should also not forget funding staff positions on campus that will assist in managing the process. A chief merger or transformation officer, for instance, would serve as the point person for all things “merger.” Colleges may also establish and staff a project management system and office. Finally, I would be remiss in not mentioning the costs of engaging expert consultants to assist in all phases of the merger.

The financial merger-related costs can range from a few hundred thousand to several million dollars. And the resources needed are not only monetary, but also includes leadership and staff attention, prioritization, focus and energy.

Not all these costs have to be expended immediately. Some of these resources can be allocated over a period of two to three years (e.g., marrying IT systems and addressing faculty compensation), while others must be available upfront (e.g., unifying HR and payroll).

Careful planning and an understanding of what these costs are help with future-oriented budgeting. However, it is also true that the longer it takes to merge systems, peoples, and images, the more likely it is that the merger will fail to create a unified, synergistic and engaged university community.

When undertaking a merger, leaders should recognize — and accept — that these costs tend to occur sooner than gains are realized. That’s another reason why mergers should be considered much earlier than most governing boards do so. Notwithstanding these costs, the benefits of a well-selected and executed merger will far outweigh its costs in the long run.