10 things universities can learn from mergers in the FE sector

• James Clark is a Managing Director at Interpath Advisory, the UK’s largest independent Restructuring and professional advisory firm. James is co-lead of Interpath’s Education Team and has advised on over 20 mergers and potential mergers in the FE and HE sectors. In this blog, James explains 10 things universities can learn from mergers in the FE sector.

Few people connected with the sector would contest that higher education institutions are coming under increasing pressures: a reduction in overseas students due to visa changes, inflationary pressures caused by macroeconomic factors and government policy, increased competition via alternative routes for 18+ students and plain and simple population patterns.

Many of these headwinds were experienced by further education (FE) colleges not that long ago, and many would agree these have not vanished completely. The Area Review process, led by the FE Commissioner, sought to remove inefficiency across sixth forms and colleges – as this author would put it (admittedly in crudely simplistic terms) – by taking colleges that are half full, removing excess capacity and leaving fewer college groups which are full. Is it time for higher education (HE) to follow suit? Is it inevitable that HE will do so, though perhaps not on the scale seen in the Area Review process? Should we be seeing more mergers, more economies of scale, and more collaboration to navigate the gales?

I’m not suggesting FE and HE are directly comparable. But they are both in the business of education, both have people at the heart of their institutions (on a major scale), both manage big cost bases and both suffer from similar issues around competition and government policy. So are there things that higher education institutions can learn from a major upheaval started in FE in 2015?

10 things we can learn from FE mergers

1. Are the cultures of the merging institutions aligned? One of the major obstacles to mergers (which either create an upfront barrier or mean that post-merger difficulties arise) is that the institutions have very different values and cultures. Existing relationships may help parties understand whether they are a good fit for each other. Management teams contemplating mergers would help themselves by reaching out and starting a dialogue or by increasing the frequency of their catch-ups.
2. Understand the regulatory landscape. Navigating the regulatory landscape and remaining compliant with educational policy is complex and will be breaking new ground for many management teams. Knowledge of precedents and other case studies will be helpful. Advisor relationships are helpful here. A number of advisors, both in the financial space and legal space, emerged as market leaders during the Area Review process.
3. Understand your stakeholders and take them on a journey. Banks, governing boards, the Department for Education, the Office for Students, pension scheme trustees. Do not underestimate the different angles each will be coming from. Each will want to know ‘what’s in it for me?’ and care will be needed to ensure each stakeholder feels supported by the merger. Poor communication and a lack of engagement could lead to opposition and unwanted obstacles.
4. Agree a governance structure at an early stage. Effective and committed leadership is essential for a smooth transition. Conflicts in governance will create unnecessary barriers from the off. Successful mergers I have worked on have had Chairs who have worked together from the off – being like-minded, especially in the desire for success, to leave a legacy and preserve for the next generation has been key,
5. Grip & Control. Create a steering committee. Set milestones and deadlines and be held to account. Clearly identify what’s on the critical path. If planned well, mergers typically happen on 1 August. Delays to the process could see management teams having to manage critical parts of the merger in term time. Many of the mergers I have worked on have had turnaround directors managing the process.
6. Don’t assume the plan ends on day 1 of the merger. A 100-day post-integration plan will also be required, with dedicated resource to deliver operational control, as well as the expected benefits of the merger. Failure to plan for this could result in significant operational disruption, for example, if administrative, curriculum support, and IT systems need to be merged. The Area Review process made the 100-day plan part of its requirement for merger support.
7. Clearly understand the rationale for the merger. Educational improvement? Cost savings? Revenue protection? This may then determine your chosen merger partner.
8. Crunch the numbers and make sure it stacks up financially. Exploring and delivering a merger will not be cheap, with significant input from legal and financial advisors required, both before, during, and post-integration. Ensuring tangible benefits can be secured from a merger is crucial. Again, those successful mergers involved specialist financial personnel, often interims with expertise in education, to examine the potential benefits prior to the merger.
9. First mover advantage. Don’t leave it too late to determine that a merger is right, or even essential to your survival. Be front-footed – the more time given over to the proposed merger, the smoother the process will be, and the more optimal the decisions made.
10. A merger might not be right, but other structures may be available.  Whilst a number of FE institutions decided to abandon merger plans, this gave the institutions time to properly examine their long-term strategy, their cost base, and other potential “alliance-type” shared services models.

Some would argue that the FE mergers have provided an opportunity for a reset, benefitting from a huge Government funding pot. Many (and not without great leadership) have successfully turned around the fortunes of financially and educationally stumbling colleges.

One beacon that shines for me, which I had the pleasure of supporting, is the merger of Telford College of Arts and Technology and New College Telford. Within a short period of time, its financial health was upgraded to Outstanding, and its Ofsted upgraded to Good. A remarkable turnaround and testament to a focused and forward-thinking management team and governing body that, when faced with the task, grabbed it with both hands and drove it hard.