Is a merger a solution to your university’s financial woes?

As the pandemic takes its toll on universities’ international enrolments and governments’ finances, university leaders and ministers alike may be mulling the prospect of university mergers.

The seismic move to online provision during the pandemic may also have dampened longer-term demand for that traditional on-campus student experience. That is a challenging prospect for institutions with large fixed costs in terms of buildings and people. Seeking to increase commercial revenue from the use of no longer needed university facilities would be unlikely to fill the gap.

In the UK, the pressures are heightened by government worries about the cost of financing student loans and consequent talk of reducing tuition fees – not to mention the potential tripling of the Universities Superannuation Scheme’s deficit within two years, requiring immediate additional contributions beyond the means of many institutions.

In the US, mergers have been common for some time, but the pandemic has exacerbated the pressures imposed by a declining university-age population, already leading several universities to proposed mergers this year.

But perhaps the pressures are most evident in Australia, where rigid border closures have hit international enrolments hard and are not expected to end until the second half of 2022, leading to predictions that the proportion of international students on Australian campuses could plummet from more than one in four to less than one in 10.

Those institutions with financial and reputational strength may have strategic options of refinancing, restructuring, adopting a radically new virtual business model or pursuing some combination of all three. But others may feel that a merger is their only way forward.

Governments often view mergers as an attractive way to remove the problem of non-viable institutions and reduce institutional fragmentation. Cutting costs by removing duplication and rationalising supply chains also promises to make room for greater investment in core activities such as research, teaching, campuses and service provision, allowing the merged universities to compete more effectively against their peer group.

However, evidence of long-term success resulting from mergers is fragmentary. There is some evidence of research improvement but the much-touted efficiency gains, for instance, seem only to be very short term and to vary significantly according to whether mergers are between two strong universities or two weaker ones: two weak parts rarely result in a stronger whole. It also seems to be easier to make a success of partial mergers than full ones.

Relative institutional status is also a predictor of long-term success or otherwise. Mergers of equals might seem, on paper, to be marriages made in heaven, but they are generally problematic because they maximise the number of areas of overlap that need to be resolved if efficiency gains are to be realised. This can lead to significant disruption over long periods of time and even result in subsequent divorces.

Mergers between different kinds or sizes of institutions seem to work better, where universities come together to fill key gaps in research capabilities, taught programmes or strategic real estate – or else to extend their geographic coverage. In those mergers, great efforts are made to protect the essence and positive characteristics of both universities, and while the opportunities for cost efficiencies may be fewer, the zones of conflict are also minimised.

Moreover, while the strategic intention behind university mergers may be sound, university leaders often underestimate the difficulties of post-merger integration. Sustainable outcomes depend on effective process management and coherent integration of the most valuable resources. But while a great deal of store is put on building trust between executive leadership teams in the crafting and delivering of a merger transaction, that is not sufficient for long-term success.

University leaders may be the lightning rods for employees’ anxiety about the implications of the merger for them, so communication is vital. Top-down decision-making in an organisation where the primary resource is the quality and capabilities of its staff does not automatically translate into buy-in and commitment. This is a particularly pertinent observation in a highly competitive market for talent.

It is only through encouraging staff to understand and activate synergy potentials on their own volition that superior research and teaching will result. And that is the single best way to put the merged institution on a trajectory of sustained success.

Duncan Angwin is dean of Nottingham University Business School and professor of strategic management at the University of Nottingham.