Higher education is experiencing a period of unprecedented and significant change, the likes of which has not been witnessed by many of the current leaders.
While some development appears cyclic (surely subject-level TEF resonates with aspects of the 1990’s subject teaching quality assessment), others are going to deliver something which is very different. We have now entered a new phase which is market-led and commercially focused. Are our university leaders preparing for the commercial world of mergers and acquisitions?
Governors and senior leaders shouldn’t just wait until their diary flags that it is time for the next strategic planning cycle. The world is changing too quickly for static strategic planning – the continued existence of some of our higher education providers remains precarious because of the post-18 funding arrangements and the increased competition for students.
Students at the heart?
One of the consequences of Higher Education and Research Act (HERA) 2017 was the demise of HEFCE, replaced by the Office for Student (OfS) and Research England (part of UK Research and Innovation). Although there has been a great deal of focus on the OfS and its role as a regulator to “protect the interests of the student” and ensure that “choice and competition drive innovation, diversity and improvement support competition”, very little has been made of a key function that the former HEFCE provided.
Over the years it was incredibly successful in maintaining stability and confidence in the HE sector by deploying policy levers that avoided catastrophic institutional failure. While there are a few examples where universities merged, reconfigured or renamed, it was HEFCE’s ability to work in partnership with institutions that underpinned the stability of the sector.
The strategic management of the block grants it provided for teaching and research was a major tool – large funding shifts were smoothed out at the institutional level. Alas, the OfS does not carry this responsibility. Its remit is focused on the student, rather than the institution. The new safety net isn’t transition funding or policy levers, it is a suite of institutionally-drafted documents containing powerful words that highlight strategic risks and high-level actions that will be taken to protect students. Somehow this doesn’t inspire me with confidence.
Self-help
Each university really should be looking at itself and considering what actions it is taking now and will have to take in the future, rather than just produce papers. The retail sector has shown that the high street can change very quickly – Woolworths and House of Fraser are examples and John Lewis has seen its profit margins wiped out in a matter of months. A lack of cash, the inability to make their capital or loan repayments, and the absence of a supportive sector agency all contribute conditions that are ripe for acquisition. This could quite easily be in the form of a foreign investor or organisation, rather than a current UK provider.
Campuses may survive but new names and logos may appear over the doors.
Governors and leaders need to take action now. Preparations which they put in place may be deployed by their successors, but their responsibility today is to determine future needs and start preparations. For example:
- Refreshing the governing body with individuals who have worked in, or have experience of, merger and acquisition;
- Ensuring that external legal providers have both commercial and educational expertise and that competitive rates are negotiated into the contract now – it is far easier to negotiate rates at this stage than when operating in a cash-constrained environment;
- Strengthening the commercial skills within the senior team, using external advisors and assessors to help secure new talent and mitigate the potential for unconscious bias to appoint in your own image;
- Reviewing contracts, commercial arrangements and partnership agreements for legacy clauses and costs to identify key risks and then where possible renegotiating more favourable terms;
- Ensuring that there is diversity within the leadership team and a confident leadership culture which encourages the leadership team to both think and discuss the unthinkable, and have the humility to look beyond individual egos and do the right thing.
Act now
The elephant in the room is mergers and acquisitions. While no leader may want to do it, leadership is ultimately about taking tough decisions. Great leaders do the groundwork and preparation to enable them to execute new strategies at the optimum time, rather than when they are forced to. Just like Brexit, when engaging in negotiations on topics as fundamental as these, it is important to know which cards you hold and then how best to deploy them. Even with a weak hand, good leaders still have cards to play and gains to be won if they play their cards strategically and tactically.
REF2021 is just around the corner which means that the next significant shift in quality-related funding will be less than four years away. That is one undergraduate recruitment and fee cycle. With no HEFCE around to bail out universities and an OfS ordained with a student-focused remit, it would be pure madness to rely on the review of post-18 funding to deliver a solution.
In this new world, success will come down to leadership – having the courage and the bravery to think and prepare for the unthinkable.
I don’t seem many mergers – mergers are about bringing strengths together – much more likely that there are strategic acquisition of assets (campus, courses).
Why would University X want to take on the liabilities of failing university Y – makes no sense.
So glad I left the U.K. university system 16 years ago. Always thought I was working for the public good, not having to become a brave and courageous ‘leader’. No mention of academic staff here. Having said that, in the 1990’s I was involved as a bag carrier/door opener (there lies a tale for the memoirs!) in discussing the potential merger of Dundee, St Andrews (a remerger for them) and Stirling universities. In a hotel in Perth as I recall. All very cloak and dagger. Great fun. No outcome. Unsurprising really. Stirling would have been taken over.
I think the animal in the room is not an elephant, but a boa constrictor of digital disruption, rising fees and increasing costs that’s likely to slowly suffocate and then consume whole institutions.
History of M&A in the sector is not great: most mergers aren’t and shouldn’t be treated that way.
Challenge is that there’s not much in it for a successful institution to take over a struggling one. The risk is that the bad one drags down the better one. And trying to precipitate a merger pre-crisis takes a huge amount of effort that can be thwarted by either VC and either Chair.
The commercial logic for consolidation is rock solid. The institutional incentives are dead against