A merger can help drive sustainable growth in higher education

Higher education institutions, facing heightened scrutiny from the U.S. Department of Education, are grappling with considerable uncertainties related to funding, oversight, and long-term viability.

Institutions that are financially vulnerable and heavily reliant on tuition revenue could be especially impacted by potential changes. As a result, boards are considering mergers or acquisitions as a strategic approach to address challenges.

There are, however, many considerations for organizations to assess prior to pursuing a merger or acquisition to help make informed decisions.

Factors impacting education institutions

Dropping enrollment trends place additional strain on educational institutions. From 2010 to 2021, undergraduate enrollment fell by 15%.

Demographic factors

Declining birth rates are contributing to a significant drop in enrollment trends. U.S. birth rates have decreased by 20% since 2007. This reduction in the number of potential students heightens competition for tuition revenue.

Other factors

The COVID-19 pandemic coincided with 42% of the decline in enrollment. A Gates Foundation study indicates concerns about shifts in the education marketplace also affect potential students’ decisions.

The shrinking student population could not only affect future enrollment projections and the overall value of institutions but may also serve as a key motivator for pursuing such mergers.

Balancing strategy with valuations

Merger considerations are often driven by attractive valuations. While these opportunities may seem beneficial, they can become costly in the long-term if the merging candidate is not a strategic fit.

It is crucial for boards to assess their overall strategy and mission before pursuing mergers, acquisitions, or divestitures.