Governance at the forefront of strategic options for change: navigating mergers and acquisitions

Advance HE Chief Executive, Alison Johns, invites governing bodies across the sector to consider whether they are navigators, drivers or passengers when it comes to major strategic options for change, particularly in the context of merger and acquisition.

This provocation for our final Big Conversation workshop in partnership with GuildHE reflects on the role of the Board both in: 

• initiating a strategic options review when it becomes clear that deep organisational and structural change is needed, and
• pre the decision to merge/acquire, during the phase from decision to day 1 and then post day 1.

In December 2024 the Advance HE Governance Conference focused on governing with humanity in recognition of the important leadership role of the governing body and its responsibility as leaders to also ‘take people with them’. In the subsequent six months, and looking ahead, we need a continued reminder of this as mergers, acquisitions, collaboration, partnerships and other types of transformation dominate the sector narrative. 

The intention at that conference was to encourage sector leaders (governors and executives) to think beyond the fiduciary, legal and regulatory aspects of navigating such change, albeit they are of utmost importance. 

Mergers and acquisitions

Mergers and acquisitions are filled with complexity and as with many major strategic change and transformation initiatives it follows that governing mergers and acquisitions is a balancing act. Getting the balance right is dependent on a number of factors but first and foremost the boardroom/executive relationships and mindsets are critical. There needs to be a continual evaluation of the boundary between governance and leadership as deep dive, detailed work relating to mergers and acquisitions alongside pivoting to oversight of business as usual can be challenging; it is a fluid line but must always be based on current context and mutual trust.  

Two institutions in our sector with recent merger experience are City St George’s University and Anglia Ruskin University, both of whom publicly shared their laser-like focus on vision and strategy as the driving force which informs the strategic direction, guides decision-making and facilitates the right conditions for merger. With accountability for the organisational mission, the governing body should be open to such strategic options but they will need a clear strategic position in mind – a fully articulated ambition to merge, in the case of both City and St George’s universities (which merged to form City St George’s), with criteria and values clearly articulated, or a more opportunistic approach based on key principles eg portfolio growth, strategic alignment and/or stakeholder benefits.   

Critics argue that governing bodies in the sector are not proactive in driving and considering strategic options and furthermore have been labelled as ‘reviewing what is given to them’, ‘prioritising process over outcomes’ and ‘discussion over action’. If that is true, ineffective decision-making isn’t just an inconvenience – it actively undermines progress, leaving governing bodies incapable of thinking about the strategic position of the organisation, and strategic risk/opportunities available to them.   

When is the wrong time to consider a merger?

Leaders of recent mergers in the sector will attest that the governing body should not rush into a merger decision if the rationale and strategic aim is unclear – getting the rationale clear at the start is essential and that might include: 

• Growth- including access to new partnerships, estate, resources or suppliers
• Capability building– gaining new talent eg research staff
• Competitive advantage– new technology and process innovation
• Cost reduction/efficiencies– which can enable sharing of resources or synergies of delivery.

In the current HE context cost reduction and efficiency are likely drivers, and many mergers involve at least one party which is in financial difficulty or anticipate that it will be. 

It is possible and can be laudable for a financially strong institution to merge with a financially weaker partner if it serves the greater good, but there are even more complex challenges for a merger if both organisations are in a position of financial crisis, not least because the costs of merger, in both time and money are considerable – during and post-merger.   

What capacity and capability are required from the governing body during a merger phase?

All the usual capabilities are needed by a governing body – from scrutiny to critical thinking, challenge and a mindset which acts in the best interests of the institution and holds the executive to account. But the Board can and should: 

• provide an important role in supporting the executive during what is an extremely challenging time
• consider the interests of key stakeholders eg current and future students and staff
• ensure that the institution acts according to its values, ethical code and with integrity.

Of course, merger experience on the Board can be invaluable, as long as those with experience do not make assumptions that a merger in higher education will be the same as a merger outside of the sector. 

Governors will need to be prepared to offer additional time to undertake the oversight needed in a merger / acquisition situation. Governance in mergers and acquisitions (M&A) involves establishing internal structures and mechanisms to ensure the new entity formed complies with policies, procedures and ethical standards. It focuses on managing risks, maintaining compliance and protecting stakeholder value throughout the transaction and integration process. It offers independent advice and should always be supplemented with bespoke expertise which could be legal, estates or people related. The governing body will oversee this and will need assurance that the advice, expertise and experience needed to deliver is in place. 

Pre the decision to merge/acquire

The Board would typically: 

• set the scope of, and then consider, due diligence and the creation of the terms and conditions of merger
• give proper consideration to short, medium and long-term benefits – essential in the context of creating a sustainable institution for the long term
• seek assurance on strategic alignment, scrutiny of the other entity’s financial, legal and operational position to identify risks and opportunities
• establish Regulatory Compliance requirements
• oversee top level (not to be mistaken for senior), stakeholder management and communication, including engagement of the regulatory and accrediting bodies and understanding the impact on key stakeholders such as students and staff.

During the phase from decision to day 1

• Appoint the senior leadership team and particularly the new Head of the Institution. Consider, with the senior executive retention arrangements for key staff to protect valuable institutional knowledge and mitigate risks to resource capability and capacity.
• Agree governance arrangements for the new institution or collaboration.
• Oversee stakeholder management and communication.
• Oversee any ongoing due diligence.
• Scrutinise financial planning.
• Establish key measures of success to hold the executive to account and to evaluate organisational success.

From day 1

• Redraw the governance/management boundary and embed all of the work outlined above into routine governance oversight:oversee a new regulatory and compliance assurance map.
• oversee a new regulatory and compliance assurance map.
• Oversee:cultural integrationpolicy integrationintegrated implementation.
• cultural integration
• policy integration
• integrated implementation.

The importance of due diligence

Due diligence is emerging as a critical component of mergers in the sector.  This involves clarity of requirements, understanding of what aspects of due diligence can make or break the conditions of merger, and building trust so that risk can be appropriately managed and mitigated.   

At its most basic it is a working out of legal and financial risks which need consideration and clarification before a decision to commit to merge.  But it can, and in the case of recent sector mergers, include understanding of the regulatory requirements for merger to protect the student interest in relation to qualifications, and it can be seen as all of the governance oversight and strategy setting for the newly merged organisation. 

One hopes that the process will confirm all the known knowns, but it often uncovers challenges or unknown unknowns.  It is essential that the due process activity is scrutinised to ensure that it: 

• establishes clear parameters and expectations for all parties
• has clear and detailed information and data requirements.
• includes mutually agreed timelines and quality of information and data.

For the sector, key questions are: 

• do we have the skills and mindset in our governing bodies to foster the vision for merger/acquisition and the oversight thereafter to drive that vision?
• are our governing bodies navigators, drivers or passengers when it comes to major strategic options for change such as merger/acquisition?
• should mergers and acquisitions be higher up the agenda for institutions in the current sector climate or are other transformations more important?

We look forward to discussing this further at our next Big Conversation event on 24 June with Mark Taylor, Partner at Shakespeare Martineau and Lesley Haig, Vice-Chancellor, Health Sciences University.