Leadership Foundation

HE/FE Mergers - Literature

• Literature review for the higher education collaborations, alliances and mergers project
• Strategic mergers of strong institutions to enhance competitive advantage
• The governance of merger in South African higher education
• A comparative study of mergers as instruments of reform in higher education
• Models for mergers in higher education
• Institutional mergers in Australian higher education since 1960
• Mergers in higher education: A strategic analysis

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Literature review for the higher education collaborations, alliances and mergers project

Report to Hefce by Oakleigh Consulting Limited (published November 2010)

Key findings include:

Critical success factors, good practice & lessons learnt from institutional mergers

• a strong educational basis and shared vision is required for the decision to merge, in addition to a clear strategic fit between institutions and strong leadership;
• there has to be an effective merger planning and implementation process;
• staff issues (e.g. issues of payroll and pensions), student issues, and cultural issues must be addressed – including consultation and open communication;
• merging institutions should be realistic and should not underestimate the likely costs of the process and overestimate the potential savings;
• where merging institutions have complementary missions and cultures, the chances of success are far greater; and
• benefits realisation has to be actively managed and measures of success devised and tracked.

Lessons learnt from less formal partnership and collaboration in HE and FE:

• a high degree of common purpose, focus on strategy and vision is required, as is commitment to sharing, trust and mutual respect across organisations;
• both senior management and those tasked with implementing the change must be committed throughout;
• project teams should include the right range of professionals required to develop the business case, and seek professional advice when required;
• appropriate resourcing is required, particularly time to participate in partnership activities and skills development to support this; and
• success is more likely where there is a history of collaboration, or a national, regional, local or affinity group base or an internal market already exists.

Most mergers fail to live up to expectations because of poorly managed post-deal integration. In brief, this is because of: lack of appropriate planning; poor strategy and management; lack of open communication and a clear vision; and a range of people and cultural issues.

Financial considerations

• One source points out that commercial organisations need to gear up for a merger and spend more money on the process. In contrast, HEIs may see merger as a way of taking costs out quickly. While, in the longer term, there may be the possibility of cost savings arising from a merger, the process itself requires additional costs.
• The three biggest costs incurred during a merger or restructure are in terms of people, property and technology (Source for Consulting, 2010). Additional costs therefore include funding for contingencies in relation to property and staff salary issues, in particular differing pay scales and pension benefits. Differing pay scales and pension costs are key issues particularly in relation to HE and FE institutional mergers.

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Strategic Mergers of Strong Institutions to Enhance Competitive Advantage

Higher Education Policy 21, 99-121 doi:10.1057/palgrave.hep.8300172. By Grant Harman and Kay Harman. (March 2008)

Recently, in a number of countries, there has been a decided shift from mergers initiated by governments, and dealing mainly with ‘problem’ cases, towards institutional-initiated mergers involving strong institutions, and with clear strategic objectives. These issues are addressed and a case study is presented of the 2004 merger that created the new University of Manchester.

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The Governance of Merger in South African Higher Education: A Research Report prepared for CHE

By Martin Hall, Ashley Symes and Thierry Leucher (August 2004)

The paper presents a set of observations that are seen as important for informing a full consideration of the governance of merger.

• Successful restructuring outcomes will depend upon the ability of state and institutions to negotiate specific mergers and incorporations to common benefit.
• There is a danger that the principle of ‘equal partnership’ in mergers, and especially in incorporations, may not be applied consistently in practice; governance in the premerger phase must give careful attention to this.
• Councils should carefully assess the specific due diligence needs of the merger or incorporation in which they are involved, notwithstanding the due diligence guidelines that have been published by the Ministry.
• A Memorandum of Agreement and merger plan are key frameworks for merger governance that should be developed in the pre-merger phase; mechanisms are required to ensure that goodwill and momentum established through these mechanisms are carried through to the transitional and integration phases of the merger.
• Given inherent challenges posed by and for the Interim Council, institutions must take into account the specific circumstances of their merger in selecting a preferred model for the Interim Council.
• In governance terms, the process of establishing institutional culture and identity requires conscious attempts to plan, implement and monitor institutional development; the Council of the merged institution must exercise its accountability in this respect.
• Decisions respecting academic integration should be driven by a defined vision and mission and should be taken only once that is in place.
• Models for multi-campus governance should be evaluated in terms of their likely impact on effective operational and academic integration, as well as on the creation of a new institutional culture and identity in the merged institution.

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A Comparative Study of Mergers as Instruments of Reform in Higher Education

Presented to the Reform of Higher Education in Six Countries International Workshop, Centre for Policy Studies in Higher Education and Training, University of British Columbia, Vancouver, British Columbia. By Daniel W. Lang, University of Toronto. (August 14-15, 2003)

Examines mergers from Australia, Canada, the United Kingdom, South Africa, the United States, and Japan – focusing on jurisdictional differences and presenting five key characteristics of merger:

1. The motivation for merger: Why do institutions and, in some cases, governments seek to merge? To what extent is the objective survival? To what extent is it reform?
2. The political economy of merger: What happens when institutions merge?
3. The participants in merger: In addition to the institutions themselves, what other agencies participate in merger: funding agencies, "buffer" agencies, other institutions, governments, sub-units of institutions? Is the array of participants dependent on the extent to which reform is an objective of reform?
4. The form of merger: Are entirely new institutions formed or do smaller specialized institutions "disappear" in larger, comprehensive institutions? Do mergers reduce the amount of diversity in systems of post-secondary education? Are mergers among similar institutions -- for example, a university and a university -- or are they among different types of institutions -- for example a polytechnic and a university?
5. Alternatives to merger: Do some jurisdictions rely solely on merger to meet their objectives while others regard merger as one of several possible forms that inter-institutional cooperation might take?

The paper concludes that while at this time it found more successes than failure among HE merger, it “it is not a record that can commend merger universally”. It also posits an important distinction between mergers which are similar to those in the corporate world, ie between “two highly autonomous institutions voluntarily choosing to merge, usually for reasons of economy” and mergers which are “initiatives more of broad public higher educational policy than of corporate strategy”.

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Introduction to special issue: 'Merger revisited: international perspectives on mergers in higher education'

By Kay Harman and V. Lynn Meek. Higher Education 44: 1–4. DOI: 10.1023/A:1015598525413 (2002)

A variety of different models and mechanisms have been used by higher education systems in many countries to achieve restructuring and increase levels of institutional collaboration. Drivers of these efforts have been many and varied but particularly important have been pressures to:

Increase efficiency and effectiveness, especially in coping with rapid and substantial growth in student numbers which in turn brings heavier demands on institutions;

• Deal with problems of non-viable institutions and institutional fragmentation.
• Widen student access and implement more broad scale equity strategies.
• Differentiate course offerings to cater for greater student diversity and to improve the quality of graduates.
• Increase government control of the overall direction of higher education systems, especially to ensure that higher education institutions serve more directly national and regional economic and social objectives.

In many cases, restructuring efforts have formed integral parts of major expansion and adjustment as relatively small and elite systems of higher education have moved to mass higher education. In this context, the dominant trend has been to move from relatively small and often highly specialised institutions towards fewer, larger and more comprehensive institutions, and from single site and single campus to multi-site and multi-campus institutions.

The articles which comprise the rest of the special issue highlight that mergers can take any number of different forms, from loose affiliations at one end of the spectrum to tightly integrated models at the other. In turn, the particular form of a merger is likely to have a major influence on the merger process, the kinds of difficulties likely to be experienced in bringing different types of institutions together, the kind of structures likely to emerge and the degree of success of efforts to integrate the partner institutions. The most common forms of merger can be portrayed as voluntary and involuntary, consolidations and take-overs, single sector and cross-sectoral, twin partner and multipartner, similar academic profile (‘horizontal’) and different academic profile (‘vertical’) mergers.

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Models for mergers in higher education

South African Journal of Education, 21(4). By M.M. Botha (2001)

Basic terminology is described, for example:

• Merger: “The combination of two firms into a single firm.” (Chambers & Lacey, 1994:609); “The combination of two or more firms, in which the resulting firm maintains the identity of one of the firms, usually the larger one.”
• Incorporation: The same as the above definition of merger.
• Consolidation: “The combination of two or more firms to form a completely new corporation”

Types of merger are presented (from Walter and Gitman)

• Vertical merger - When a buyer-seller relationship exists/could exist between companies so the target company management “shift from serving the market to linking with the acquiring or parent firm.”
• Horizontal merger - a merger between companies with “identical products operating in the same or different markets”; so a company would acquire a supplier or a customer.
• Concentric merger - A merger between companies with very similar production or distribution technology.
• Conglomerate merger - A merger between firms with no buyer-seller relationship, technical and distributional relationship or identical products, i.e. unrelated businesses.
• Congeneric merger - When one company acquires another in “the same general industry, but neither in the same line of business nor a supplier or customer.”

Typical problem areas are discussed that could result in the failure of a merger if they are not carefully managed:

• The choice of a merger partner.
• Enabling legislation as well as internal policy.
• Timing of the merger.
• A clearly defined merger plan and process
• People issues

Three potential structures for post merger institutions are identified:

• The confederal structure - A confederation is a formalised and fairly permanent union in which the constituent elements retain full autonomy.
• The federal structure - the two main variants of this form are where a) Centralised powers and functions are specified while the decentralised powers and functions (i.e. the rest) remain with the individual members of the federation. b) Devolved powers and functions are specified, while everything else is centralised.
• The unitary structure - The existing parties merge into a single body with one central administration. Certain functions and powers could be decentralised if necessary, but a single identity would be essential.

A series of checklists for those involved in mergers are also listed highlighting issues to consider at each stage.

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Institutional Mergers in Australian Higher Education since 1960

Higher Education Quarterly, Volume 54, Issue 4, pages 343–366. By Grant Harman. (October 2000)

For the past forty years, institutional mergers have been a major and controversial theme in Australian higher education. Three main phases of major mergers are reviewed with particular attention being paid to reasons for merger, success factors, and longer term results. While merger experiences have often been traumatic for participants and participating institutions, on balance the longer term results have been positive, producing a university system today comprising relatively large and comprehensive institutions, well suited to compete in the new internationally competitive environment.

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Mergers in Higher Education: A Strategic Analysis

Higher Education Quarterly, Volume 51, Issue 3, pages 251–263. By Gillian Rowley. (July 1997)

This paper looks at recent mergers in higher education from a strategic management perspective. It is based on private research undertaken for a dissertation in completion of an MBA degree in 1996. The objectives of the study included the discovery and analysis of merger input factors and process variables, and an assessment of the contribution of both towards an effective outcome. The paper considers similarities and differences between mergers in higher education and as a whole. The process included structured interviews with senior management in two universities, which helped to develop a census survey of incidents involving an HE partner between 1987 and 1994. The incidents included mergers with further education colleges, other HE institutions, and colleges of health.

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For more information about the Knowledge Resouces contact:

Eleni Stamou, Research Manager