Higher ed institutions and the momentum of M&A activity
This fall, stories of campuses trying to manage students during COVID-19 are top of mind. Making decisions during this time has not been easy, and there is a lot that students, parents of students, faculty, staff and administrators have been discussing. In many cases, the decisions have placed people in situations that appear to have no clear solution. Of course at this time, a lot of the impacts and outcomes to students are unknown.
One thing that COVID-19 has led to is administrators and governance evaluating more creatively what decisions they can make that will increase the likelihood that the institution will thrive after COVID-19 has passed and the next challenge is confronted.
One approach that is continuing to gain momentum in the higher education space is the uptick of merger and acquisition (M&A) activity. The potential benefits of M&A transactions can be attractive for schools hoping to thrive in the future. Schools that are very tuition dependent can increase their tuition by increasing the number of students.
An M&A transaction could provide a school with access to a particular type of student that would not have previously considered the institution. M&A have also taken place to acquire access to technology platforms that are more scalable or reach students previously unable to connect with a particular school. For students and administrators, M&A transactions can provide more offerings than would otherwise be possible. M&A activity can result in efficiencies that lower expenses.
A high-profile acquisition took place in April 2017 when Purdue University acquired Kaplan and called the new organization, a nonprofit, “Purdue University Global, Inc.” Purdue made the acquisition for many reasons, including increasing their access to adult students, improving the institution’s online reach, and to provide a defense against industry disrupters (such as Udacity, Coursera and the Kahn Academy).
The deal resulted in Purdue receiving praise that was at least partially pegged to the future performance of the program. In fact, that acquisition model is currently being replicated by the University of Arizona. In early August 2020, the University of Arizona announced its intention to acquire a for-profit school, Ashford University. Similar to what Kaplan brought Purdue, Ashford brings a platform that is attractive to adult learners as well as a strong technology platform.Op-ed: An M&A transaction in #highered could provide a school with access to a particular type of student that would not have previously considered the institution. M&As have also taken place to acquire access to technology platforms that are more scalable.Click To Tweet
Also similar to Purdue University Global, Inc., the University of Arizona set up a nonprofit company called the University of Arizona Global Campus, and the deal is structured to compensate Ashford, at least in part, based on the future tuition revenues, which reduces the risk for the University of Arizona.
M&A activity in higher education has a certain set of obstacles to overcome. The Department of Education has to approve M&A activity, which can be a challenge. There are also aspects for institutions to consider such as to what extent a distinct identity is maintained for the previous institutions, as well as issues around space, credit hour transfers and differing degree requirements.
As schools continue to consider their future, we expect increases in M&A in higher education. Although lessons can be learned from prior activity in the industry, every transaction will have unique differences and challenges that may arise.
Chester Moyer, CPA, is a partner in RubinBrown’s Assurance Services Group and the partner-in-charge of RubinBrown’s Colleges & Universities Services Group. He provides audit and attestation services to higher education institutions. Corey Robinson, CPA, is a manager in RubinBrown’s Assurance Services Group. He provides audit and review services to college and university clients.