New Opportunities for Higher Ed Partnerships and Mergers – Changing Higher Ed Podcast 117 with Host Dr. Drumm McNaughton and Guest Mike Goldstein
In this episode, Drumm McNaughton and Mike Goldstein, Managing Director at Tyton Partners, discuss emerging opportunities for colleges and universities to engage in creative partnerships and mergers “outside the box” of conventional thinking.
The economics of maintaining campuses and serving student bodies are increasingly outstripping the capacity of institutions to generate sufficient revenue. This is especially true for smaller colleges and universities, many of whom may be on the precipice of financial viability.
As schools look for alternatives to closing, seeking a savior-type of partnership is a common tendency – but that tendency is evolving. When considering potential partnerships, schools that take a broader and more creative approach to alliances may have the best chance of surviving, thriving, and staying true to their missions.
Institutions often look for partners that share similarities. In this way, institutions are like people: we look for partners that reflect and resemble ourselves. Partnerships between similar people can prove to be problematic, especially when both parties share the same weaknesses. The same is true for institutions of higher education, which is why two schools that look alike often make poor partners. If both institutions are struggling financially, a partnership is likely to intensify this problem, not solve it.
“Two struggling institutions combining typically results in one institution struggling even worse.”
The idea is not necessarily to partner with an institution that is much stronger or much larger – and the risk there is losing one’s identity – but leaders should consider whether that is the best way to leverage what an institution does and can do so that 1+1 can in fact equal 3.
The New Merger Environment Requires “Out-of-the-Box” Thinking
Partnerships are most successful when both entities stay focused on the goal of creating a synergistic relationship. In the long run, that kind of relationship can lead not only to surviving but to thriving and serving students in the best possible way.
In this new merger environment, thinking outside of the box means considering partnerships with all types of institutions, not just other schools. Paul Smith’s College in upstate New York, a small, independent school with a good reputation, is in the process of merging – but not with another institution of higher education. Paul Smith’s College is seeking a merger with a social welfare organization, which, among other things, provides training and other services to the community.
As Goldstein notes, this is just one example of a partnership between dissimilar entities that “has the potential to capitalize on each other’s strengths and not accelerate existing weaknesses.”
Using Vertical Integration to Find Your New Merger Partner
In business, vertical integration is extremely common. Businesses commonly look to buy the suppliers and distributors of their products. The idea that institutions of higher education are exceptional and that they cannot function effectively with other kinds of enterprises may be an outdated mode of thinking. From a synergistic perspective, it makes a lot of sense for higher education institutions to consider vertical integration, even if it’s something they’ve never considered before.
“I’m not talking about throwing oneself into the for-profit world. I’m talking about working with other nonprofit, governmental, or for-profit entities. This has nothing to do with the financial structure – it has everything to do with what the organization is doing, and how what it’s doing can potentially complement what the partnering institution can do and vice versa.”
Third-Party Partnerships Bridge Education and Employer Needs
Several single-purpose enterprises have been emerging recently, including Guild, Kale, and Instride, to provide mechanisms for employers to contract with a single source to facilitate the educational development of their workforce. These entities, which are all third parties, have become experts in working with employers to customize the experience for their employees. Attaching these institutions end-to-end allows for free-flowing exchange of information and facilitation.
Accreditation Impact on Partnerships and Mergers
For two institutions to join forces in a synergistic way – meaning that they become greater than the sum of their parts – some transformation and innovation are necessary. That means that institutions must step outside of their comfort zones. Part of the problem up until now has been, as Goldstein puts it, “this instinct that if we step outside of our zone of comfort, the regulators are going to whack us.”
Unfortunately, the same tunnel vision has existed on the regulatory side, especially with accreditors. The people who handle accreditation have had the same limited peripheral vision: they have been very comfortable evaluating what they know, and much less comfortable evaluating what they don’t know.
“To the enormous credit of the accrediting community, there has been a tremendous broadening in perspective, a very substantial willingness to look at new institutional models, new ways of constructing institutions, and new kinds of alliances.”
Historically, the Department of Education constrained these accreditors very tightly. Those constraints limited what accreditors could do and dictated that they could only function within their own regions. Out of the many changes made to the Department under the Trump administration, one major beneficial change was a loosening of these rules. Now, regional accreditors have become institutional accreditors. They are no longer bound to their own limited region and can accredit anywhere.
Luckily, several of the accreditors have welcomed this innovation. The Western Association (WSCUC), the Higher Learning Commission, and the New England Commission, for example, have become very open to considering and developing novel ways to assess the quality and institutional integrity in new settings. As accreditors invite innovation, this provides an important cue for institutions.
Accreditors had previously been very clear that if institutions were going to partner, they had to show a natural affinity – meaning that both institutions would naturally fit together like jigsaw puzzle pieces. These constraints contributed to the tendency for schools to limit their potential partners to very similar institutions.
When school leaders talk about their strengths and areas for improvement, there are two sides to look at: compliance and innovation. Innovation doesn’t mean that you don’t meet standards, according to Drumm.
“There is a baseline for standards, but they want to see innovation and continuous improvement as they go along.”
In the past, accreditors looked to the nature of the acquiring institution to ensure compatibility with controlling an accredited, post-secondary institution. That created a very small box. Now, there seems to be a greater willingness to explore unconventional pairings between institutions and organizations. Potential partners no longer have to exist in the same domain, and that’s a good thing for the higher education industry. Novel partnerships also have the potential to enhance workforce development in meaningful ways.
A partnering organization may also simply see that part of its mission is education. By partnering with or acquiring a post-secondary education institution, they can enhance that mission while staying consistent with their social and other missions.
How to Discover the Ideal Partner for Your Institution
When looking for an ideal partner, Goldstein emphasizes the importance of finding the right perspective.
“It’s really an issue of finding a much higher rock to stand on, and a really good set of binoculars.”
Institutions of higher education should not avert their gaze when considering partners that don’t resemble themselves, or even those that don’t resemble schools at all. In addition, the business of higher education is now becoming a global marketplace.
By resisting the urge to turn down partnerships that seem odd at the outset, colleges and universities can benefit from taking the broadest perspective possible while applying an intelligent filtering process to narrow down their options. Because partnering entities must be able to complement and enhance one another, it’s crucial to identify where each entity is excelling and where there is room for improvement. Institutions should be looking for partners whose purposes and missions are clearly defined, as well as those who are able to demonstrate what they do best and how they do it. If these details are unclear or poorly defined, identifying the key indicators of a successfully potential partnership may prove impossible.
Imagination + Great Analysts = Successful Partnerships
“The secret sauce is having an imagination. It’s being willing to look beyond the notion that it doesn’t say college or university. You must have the imagination to think about how to make it work.”
In addition to having an imagination and wiping away the notion that potential partners must be colleges or universities, it’s important to have great analysts who know how to go through the data.
Imagination means looking beyond the low-hanging fruit of partners that seem like obvious fits right away. While it’s important to find what works, it’s equally important to identify potentials that may not seem to work at first – then finding ways to make it work.
New Opportunities for Partnerships and Mergers
There are numerous ways to find new opportunities for partnerships via public and private partnerships, and there are mechanisms for joining non-profits and for-profits together. While that type of merger may seem unprecedented in higher education, the legal mechanisms for making such a partnership work are now in place. With the right expertise, the possibilities for successful partnerships and acquisitions are much broader than they once were.
New Financing Mechanisms for Public-Private Partnerships
The possibilities for what can be done in public-private partnership arrangements are enormously different from what they were just a few years ago. New financing mechanisms enable large financial institutions to assess these types of novel transactions. If the prospective institution to be acquired has good financials, generates good revenue, and uses that revenue to improve student outcomes, then that institution is working effectively in terms of student persistence and graduation rates. Large financial institutions today are willing to create financing mechanisms that make partnerships feasible for such institutions.
Three Takeaways for Higher Education Leaders and Boards
- Take off the blinders that have led to tunnel vision in the past and broaden your perspective using a good set of wide-angle binoculars.
- Understand the value proposition of your institution. Know what your problems are, but don’t forget about your strengths. Clarify what it is that your institution does best and what makes you attractive to potential partners.
- Find people to work with who understand not just your ecosystem, but the ecosystems that surround you. This will enable you to take advantage of opportunities and configure arrangements that can make those opportunities work.