The narrative in the higher education sector around mergers has come full circle.
When we were working on the Radical Collaboration report, published last year, the conversation was initially about merger, but quickly segued to group structures and shared services, with merger sitting as one option among many on a spectrum of collaboration.
Now, with financial pressures becoming ever-greater, a lot of those conversations have pivoted straight back to merger. Institutions have been making tactical savings and thinking about how they might collaborate. But a good number have seen the writing on the wall in terms of the level of risk to their survival as individual organisations, and leadership teams and boards are now openly discussing whether merger is an option.
That shift is understandable, but it also creates the single biggest risk we see in this transformation space – because financial pressure is rarely a solid strategic rationale for merger on its own. Financial position might be what starts the conversation, but that does not mean it is the right reason to merge with a particular partner. Two financially distressed organisations will have the same inherent issues and problems after a merger that they had before it. A deal might buy some time and deliver some synergies, but it will not solve what was broken unless it is serving a wider strategic objective.
The merger has to be a means to a strategic outcome – better student outcomes, new faculties or schools, strengthened research capability, greater market strength. The merger of King’s College London and Cranfield is a useful example precisely because everyone can recognise a genuine strategic fit there, in terms of portfolio and future opportunity, including undergraduate provision at Cranfield.
It is very difficult to become sustainable through cost-cutting alone. A merger is the biggest transformation lever you can pull. The question to keep asking is what a bigger institution with better capability actually unlocks, what you can do better, and what you can do differently.
Scale matters, but size is not the whole story
The prevailing view across the sector is that size is important, as scale means more financial headroom and typically greater sustainability.
However, size alone is not the only sign of success. Smaller size does not always mean financial distress or weakness. Difficulty is just as likely to come from the estate, from existing debt, or from attempted investments that have not come good. Smaller organisations often benefit from real agility and can make decisions faster than medium or large institutions. They frequently have higher staff and student engagement. What they tend to lack is headroom and financial resilience – the ability to absorb a financial shock, or a year-on-year decline in student numbers, particularly international numbers that have been holding up the business model against rising fixed costs. Larger institutions have economies of scale, more diversified income, a broader research base, and a stronger international brand. However, they can also carry more complexity, larger legacy cost bases, trickier estates and a lower ability to drive transformation at pace.
Typically in higher education the pattern is for a larger organisation to merge with a smaller one. This mostly holds true outside the sector as well. Across twenty years of this work in higher education and in other public and private sector contexts, we can’t think of many cases that were genuinely a merger of equals in reality. It is almost always an acquisition – one larger, more sustainable organisation taking over another.
Being honest about that from the outset tends to make the process better, not worse. Being taken over need not mean a complete erasure of the smaller institution’s legacy and culture. The smaller institution’s academic strengths complement the larger one’s portfolio and the larger institution’s resources and reach should allow those strengths to be sustained and make a larger impact. Understanding how to keep those distinctive strengths and realise that value in a different organisational structure, rather than the absorption and homogenisation that smaller institutions may fear, is key to making a merger work in practice.
Why early conversations fail
As we understand it, most of these exploratory conversations start peer to peer, at vice chancellor level, perhaps including key members of the executive team.
The difficulty arrives when they widen out to the broader leadership team and the board, because at that point it becomes a question of taking people with you. People on both sides can see merger or acquisition as a threat rather than an opportunity. They think about what it means for them and how it affects them, as any human would. How a head of institution and executive team navigate those politics, and some real reticence from key individuals, will determine whether the conversation reaches the next stage.
Richard highlights:
Due diligence matters enormously. There’s a fairly well-defined process where issues are unearthed, scenarios are worked through, problems foreseen, and opportunities clarified. Part of what we are seeing is simply that the sector has not done this properly for a long spell, so there is limited experience of how to run the process or even what questions to ask. That means that conversations can falter, because information is missed or misinterpreted, or because new information changes the picture.
There is also something specific about universities and the higher education sector. These are some of the oldest organisations in the country – even the newer institutions will carry a long history, many grounded in a social value mission to serve their places and particular students. Staff may have spent whole careers tied to one institution. Deciding to change that, and to lose some of that identity, is an enormous thing to ask of people, and there is inevitably friction around a decision of that scale.
At this early exploratory stage delaying, or abandoning discussions altogether, can offer a path of least resistance. There will be moments when there will need to be judgements made about whether the opportunities are well-founded and whether the reward is worth the effort and investment. In some cases, the decision to pull back may be the correct one. But higher education leaders should be aware that barriers and complications at this stage are a normal part of the process and that most can be overcome, if the strategic vision is compelling enough.
The legal agreement is not the merger
Institutions naturally start by identifying their worries, their red lines and their dealbreakers, and there is a strong pull towards getting those into a memorandum of understanding and then into a merger agreement, using the legal process and legal documentation as the vehicle so that each governing body can make its decision.
Those agreements and transaction mechanics do provide commitments, guardrails and safety nets, particularly for the organisation being acquired. But they are only a small part of what enables success.
The legal process is one element of achieving a merger, but there is a risk of over-emphasising the transaction and its form, and under-investing in proper integration planning and building bridges between the leadership and the institution’s staff and stakeholders. The legal agreement is not the merger. The integration is the merger, and whether you have made a success of it. It is the effectiveness of the integration that allows an institution to create value, whether that is in system-level efficiencies or in deploying new subjects, expertise, or networks in new ways.
Sam Sanders, KPMG’s head of education and co-author of Radical Collaboration observes:
Your integration planning should start before you have agreed to merge. You need to be thinking early about what the future institution looks like – the academic operating model, the sites, how people are brought together. It puts you on the front foot and it avoids the black hole of uncertainty that otherwise opens up.
Culture is consistently the area with the least focus and investment. One of the things most often overlooked is understanding the current cultures before jumping to design a new integrated one. There are always cultural differences between institutions, and they are rarely fully understood, particularly in a merger context where you are creating a genuinely new combined organisation and merging faculties. The technical issues that come up along the way, you can usually find a way to solve. The harder challenge is the people side, and making sure people are actually able to work together.
Leaders should never assume they have a deep knowledge of the culture of their institution – invisible currents that everyone has learned to navigate in normal times may cause a sudden surge or clash when things change. Working with staff at every level to interrogate the culture and how it shapes beliefs, everyday practices and behaviours with create the foundation for a positive discussion of how the culture will evolve in the merged organisation. Our advice is to do that cultural understanding work first, and use that insight to inform a proper cultural integration plan: how it shapes the vision, mission and values of the new institution, and how it enables people to come together under a new name and a new identity.
People will always want to know more than you are able to tell them. In our experience, the first questions in any merger are the ones individuals feel strongly and personally about – what the merger might mean and how it might impact them. That can sometimes be what appear to be relatively simple things like car parking, or email arrangements. That is not triviality, it is people locating themselves in the change.
What works is open, frequent communication early, geared around interactive dialogue, not broadcast. This sets the tone that this is a process, and invites colleagues to come forward with relevant information and questions. It allows you to keep weaving in the rationale, and explaining decisions that are made as things progress, building confidence that new information will be shared as it becomes known. And it’s an opportunity to surface concerns – which leadership must then visibly respond to and remove where possible, or explain why.
When exactly in the process to start opening things up beyond a small number of senior colleagues and board members is not one size fits all. But you should always avoid a sense that communication is absent, or that individuals cannot get information or ask their questions – that makes people worry more, not less.
Who actually runs integration
Senior leaders need to hold the vision. Beyond that, it works best if you create workstreams that take integration activity forward at functional level, with teams from both sides coming together to agree what they want their future integrated function to look like.
The future state and structure should not be designed in a dark room.
That approach needs a frame around it: guiding principles, a clear sense of what you are trying to achieve, timeframes, red lines, and mechanisms to test and challenge what comes back from the groups developing the detailed plans. A bottom-up approach engaging both sides can create silos, so you need to be able to read across the workstreams and map dependencies and expectations. You also need to keep prompting genuine transformation rather than the reproduction of two existing operating models, and to empower the right people to be part of it.
We’d advise starting early, and going deeper than you think you need to, ie not just middle leadership, but the academic individuals and teams who will be affected, professional services teams, and people on the front line who are actually going to be working together. That is how you identify opportunities and value creation, and start shaping what the new institution looks like – and make the organisation that emerges at the other end one that has the best chance of flourishing.
It also has a hard commercial benefit. What we often see is top-down identification of potential savings and ideas for new courses, packaged into a business case that enables a merger agreement, with none of the detailed integration planning underneath it. If you invest in that planning beforehand and build more of it from the bottom up, you produce a more robust business case – and one that creates more value – to put to the two governing bodies alongside the merger agreement.
Choosing leaders early is always a good strategy, because it takes a major potential sticking point off the table and gives clear lines of authority for delivery of the merger. This challenge is not unique to higher education, but it is very visible here. Decisions about who will lead the new organisation, who will be on the management team, who will head a new faculty – those decisions often get delayed, or there is an unwillingness to enter into difficult conversations until later in the process. The consequence is that critical decisions cannot be made early enough, authority is not positioned anywhere, and decision-making becomes ambiguous. Agree and choose leadership early, and let them be seen as visible leaders; put them in a position to execute decisions and back them in those choices.
Merger integration programmes are big, complex and difficult to deliver and manage. Our consistent recommendation to vice chancellors and senior responsible officers is to get the right level of investment in capacity and capability behind them – a programme management office, properly resourced workstreams – alongside a governance framework, typically drawing from both boards. For vice chancellors worried about controlling the process, the honest answer is that the scale of the undertaking makes strong programme management essential. You need trusted individuals with the time and bandwidth to lead their part of it effectively. That does not mean letting go completely, but it does mean trusting others to do the legwork.
Why merger, and not something looser
The reason merger has re-emerged as the dominant model is fairly simple: having the legal structure of a merger forces you to collaborate and integrate, and therefore to realise the benefits.
We have seen organisations in other sectors try less formal relationships and end up merging anyway, because that is where the value actually sits. It is the most transformational end of the spectrum.
Group structures and federations can add cost rather than remove it, creating additional management layers across the various entities, without enough momentum to target the kind of savings a merger can deliver. They can be a useful stepping stone, but they are rarely a destination.
And whatever route you take, the benefits take time to emerge. Years three to five is typically when the real benefits show up, which has implications for how you set expectations with your board and your staff. That is what makes mergers challenging – the difficulties are present in the now while the benefits can feel speculative.
That’s why the key to landing a merger is, first, having that clear strategic rationale from the outset – the “North Star” of value that can be weighed against all the immediate challenges. And second, taking on the difficult issues as early as possible. It is always tempting to kick the can down the road in the hope that decisions will become easier or that time will bring people around to ideas.
But decisions made later, under more pressure and with more invested, are the ones that cause relationships to break down and mergers to unwind.
Difficulties aren’t a sign that a merger is untenable – they are the work of making a merger real.
This article is published as part of a partnership with KPMG.
