Merger and Acquisition – the elephant in the room?
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. Whilst some development appears cyclic (surely subject 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 universities leaders preparing for the commercial world of merger and acquisition?
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.
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". Whilst 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 institution. The new safety net isn’t transition funding or policy levers, it is a suite of institutional drafted documents containing powerful words that highlight strategic risks and high-level actions that will be taken to “protect” the student. Somehow this doesn’t inspire me with confidence.
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 hard examples and even the solid brand of 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 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.
The silent elephant in the room is merger and acquisition. Whilst no leader may want to be the one to take the difficult decision, leadership is ultimately about taking tough decisions. Great leaders do the ground work and preparation to enable them to execute the tough decision 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’ you still have cards to play and gains to be won if you play your cards strategically and tactically.
REF2021 is just around the corner which means that the next significant shift in QR funding will be less than four years away. That is one undergraduate recruitment and fee cycle. With no HEFCE around to bale-out universities and an OfS prescribed with a student-focused remit, it would be pure madness to rely on Augar’s 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.
Allan Howells heads up the Education Practice at Wickland Westcott. A former Deputy Vice Chancellor, and holding a personal chair in Higher Education Administration, Allan supports a range of higher education providers find and develop leadership talent.
Allan Howells can be contacted on 01625 508100 or email@example.com.
This article was first published on 5th November 2018 in wonkhe.com, https://wonkhe.com/blogs/merger-and-acquisition-the-elephant-in-the-room/.