Key Considerations in Higher Education M&A

Mergers: Then and Now

The impetus for merger discussions among institutions was often a challenging financial outlook for one or even both institutions.  When an institution faces shrinking enrollment, but does not have a significant endowment available to be tapped for operating expenses, a merger or other significant transaction has been seen as a serious consideration and unfortunate conclusion of the failed pursuit of an institution of higher learning’s mission. 

Today, though, forward-thinking colleges and universities view mergers and other affiliations as key strategic considerations in the pursuit of their institutional goals.  There are numerous success stories of two institutions coming together for the betterment of their respective entities and constituencies.  The merger of Boston University and Wheelock College in 2017, the consolidation of New England College and the New Hampshire Institute of Art in 2019, and Clarkson University’s 2016 merger with Union Graduate College to create Clarkson’s Capital Region Campus are examples of successful transactions. 

Even so, there are enough cautionary tales for the prudent institution to navigate these transactions carefully.  Mergers, acquisitions, and strategic alliances and affiliations may indicate uncertain times for colleges and universities, but when guided by seasoned and dedicated advisors, they can lead to stronger, re-energized institutions that are better positioned to seize the opportunities and confront the challenges that lie ahead.


When we talk about affiliations in higher education, one size does not fit all.  A spectrum of arrangements may meet the parties’ goals and needs.

  • The parties enter into one or more contractual arrangements in one or more areas, for example: joint operations, branding, academic programs; research, etc.
  • The relationship can be as broad or as limited as the parties’ desire and can (if appropriately designed) be terminated just like any other contractual arrangement.
  • A contractual affiliation can also be (but does not have to be) an initial step towards a more comprehensive affiliation.
  • A merger is commonly thought of as one institution becoming part of the other, with all of its assets and liabilities transferring. This does not need to be the case. It is possible, for example, for a separate entity to remain or be established to administer the endowment assets of the institution that is merging out.  It is also possible for both organizations to remain in existence, legally, with the board of the institution that would otherwise be merging out retaining certain rights.   Structure can also be adapted as necessary to minimize the need for regulatory approvals.  

How to Get Started

It is advisable to take a few preliminary steps at the outset of discussions. 

  • The parties should exchange basic operational and financial information to start to get an idea of the other party’s assets and liabilities.
  • To facilitate the exchange of that sensitive information and to protect it from further dissemination, the parties typically enter into a confidentiality/non-disclosure agreement. This agreement may also contain exclusivity provisions that bind the parties to negotiate in good faith for some defined period.

Typically, the end result of the initial information sharing and discussions is a non-binding Letter of Intent (LOI), in which the structure of the deal is framed.  The LOI is the roadmap and key step in the process.  While it does not contractually obligate the parties to consummate the transaction, it helps the parties frame the deal and should contain the high-level business terms that are the most crucial to both parties. 

Due Diligence

Though the parties should have conducted preliminary due diligence leading up to the execution of the LOI, a more comprehensive diligence process should precede the finalization of any affiliation, especially in the event of any assumption of the other party’s liabilities.  Each party should review the other’s legal documents, particularly the charter, bylaws, policies, procedures, labor, employee benefits, litigation, environmental, material contracts, real estate, financing/bond, and endowment records.  Each institution’s compliance with applicable laws and regulations should be reviewed and compliance programs and cultures should be evaluated.

Diligence is an essential exercise to ensure the parties understand one another’s institutions, operations, and legal exposure, and to determine whether the institutions are well-matched.  More so than any other sector, “fit” is extremely important to colleges and universities when considering affiliations or a merger.   

Institutions of higher education are vibrant cities unto themselves with alumni, faculty, staff, students, and community stakeholders all fiercely protective of the school’s unique culture.  It is critically important for these cultures to meld harmoniously.  Due diligence will often provide important clues as to the whether the parties can come together harmoniously.

Government Approvals and Other Interested Bodies

One of the crucial considerations in any transaction is the regulatory approvals required to close the transaction and the management of the timing of those approvals.  In New York, merging institutions could need the approval of the applicable state Attorney General, Supreme Court, and Department of Education/Board of Regents.  Accrediting bodies will also need to be involved.  If tax-exempt bonds or other debt instruments are outstanding, approval of an institution’s lender(s) will also be necessary. 

Endowment funds are often a thorny issue in mergers for the institution that is merged out of existence, because it may be impossible to meet the conditions the donors attached to their gifts if the institution is no longer a going concern.  The Attorney General closely scrutinized such situations to ensure that each donor gift is used in a manner that most closely approximates the donor’s wishes.  Anti-trust approvals (e.g. Hart-Scott-Rodino) may also be required.

Counsel assists the constituent institutions by managing all these processes on a timetable that will ensure the transaction is not held up or, worse yet, blocked altogether.  

Typical Legal Documents

While no two transactions are the same, the legal documents that comprise a merger or affiliation could include:

  • A master agreement that will likely contain provisions that:
    • Specify the transfer of assets and liabilities
    • Address governance issues
    • Dictate employee-related matters
    • Impose conditions that must be satisfied before closing
    • Contain representations and warranties (though, in the event of a merger, there would likely be no remedies should a representation or warranty be breached because it is akin to imposing a penalty on oneself)
  • Ancillary agreements:
    • A consulting services agreement or management agreement intended to bridge the gap between the signing of the deal documents and the closing of the transaction
    • Employment agreements with administrators and other key personnel
    • Retention agreements designed to keep key personnel in place at least until the new affiliation is established and operational for some period of time to ensure stability

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