Expect more UK university mergers, says expert

Gayle Ditchburn of Pinsent Masons was commenting after advising on three merger deals in the sector over the last year.

Ditchburn led the Pinsent Masons team that recently advised City, University of London (City) on its merger with St George’s, University of London, in a deal that has resulted in the merged institution becoming City St George’s, University of London, one of London’s largest universities. Pinsent Masons also advised on the merger this summer between AECC University College (AECC UC) and the University College of Osteopathy (UCO) to create Health Sciences University, as well as on the merger between Writtle University College and Anglia Ruskin University (ARU) earlier this year.

“Mergers are relatively uncommon in the higher education sector and will only make commercial sense where they offer strategic benefits to the institutions involved, but financial pressures are an increasing factor in spurring institutions, particularly smaller providers, to consider consolidation in what is a competitive marketplace,” Ditchburn said. “Other potential deals are in the pipeline.”

Ditchburn explained how financial pressures have grown in UK higher education in recent years.

“Tuition fees that can be levied on students have remained fixed at £9,250 since 2017, since when institutions have had to cope with rising costs of borrowing, of energy, increased pay and pension costs for staff, and other inflationary pressures,” she said. “While some institutions have looked to attract higher-fee-paying international students to bolster revenues, changes in UK immigration policy and anti-immigration rhetoric means it is becoming more challenging to attract the numbers of international students needed to enable revenues to keep pace with cost rises.”

“These issues are converging at a time when institutions are under pressure to invest in buildings and technologies, to meet increasingly robust sustainability standards on the one hand, and students’ expectations on the other,” Ditchburn added.

“In this economic environment, we are likely to see an increase in the number of institutions forecasting budget deficits in the years to come, through their regulatory reporting to the Office for Students (OfS) in England,” she said.

Mergers are just one of the potential outcomes that can arise from a review of strategic options open to higher education institutions facing financial pressures, Ditchburn said.

“For some institutions, cutting courses, staff restructurings, or selling off campuses might be the preferred option for achieving efficiencies, but there have also been some innovative shared service models emerge,” Ditchburn said. “Mergers will only materialise if there are sound strategic reasons to consolidate – mergers can help acquirers add complimentary courses to their existing portfolio; enhance their pool of academics in particular specialisms; or gain a foothold in another geographic location, for example.”

“In our experience, the OfS has been open to consolidation, considering its statutory duties pertaining to the financial resilience of institutions, the quality of services on offer to students, and to ensuring institutions provide a pathway for students to enter employment,” she said.

“In the months and years ahead, given the economic environment, I would expect we will continue to see merger deals become attractive to a growing number of providers, though in the short term at least I do not expect we will see mergers between the very biggest, multi-faculty institutions,” Ditchburn said.