M&A In Higher Education

Higher education institutions have been facing a watershed moment. Flagship universities and brand-name colleges are still drawing enrollees. But the number of colleges that have closed in the last decade (~200) has quadrupled over the previous decade. This is why mergers and acquisitions in higher education are becoming more commonplace than ever. In fact, in the last four years, there have been 95 college mergers—a 21% increase over the 78 that took place in the 18 years prior. Most of these mergers (40%) are being executed within private and nonprofit schools, and most deals involve schools in the same state with student bodies under 5,000. It is the less prestigious schools that are struggling the most. 

This M&A trend is especially prevalent in the U.S. An excellent example is the state of Pennsylvania’s merger of six universities into two. However, many other countries are also seeing significantly higher M&A activity, such as the U.K., France, and China.

When the COVID-19 pandemic ensued in 2020, the U.S. government gave colleges $76 billion to help them avoid financial peril. Unfortunately, it was essentially a short-term solution that enabled struggling schools to delay the inevitable.

Changing Demand
Just as many business decisions are made, the trend with colleges is largely about supply and demand. Demand for college degrees is down because of rising prices that are causing many people to reconsider the economic aspects of a college education. Enrollment is shrinking. There are also new alternatives to college that are relatively inexpensive and closely aligned with the labor market. For example, big tech companies like Google, Microsoft, and Coursera offer courses for just a fraction of the price of what college tuition would be for a similar education. 

Also, schools are competing for a smaller pool of students as higher education is becoming viewed as privileged or elitist because many people simply cannot afford the cost or the debt that comes with it. Some education costs have become so high that many students and parents feel that it is not worth the money. 

It is also worth mentioning that there are a profuse amount of educational institutions, many of which offer the same types of programs. This puts added pressure on small and medium-sized schools that receive very little in endowments at a time when operating costs are on the rise. This is leading the nonprofit higher education sector to look at for-profit institutions that are falling out of favor. These schools are looking at M&A strategies to create growth by tapping into new markets and customers, adding new technologies, and gaining efficiencies in operations.