Mergers, acquisitions and privatisation: law firm's vision of future

Report predicts that sector will ape commercial business practices. Hannah Fearn reports

December 3, 2009

International mergers, creeping privatisation and new super-groupings of schools, further education colleges and universities will characterise the higher education sector in the coming decades, according to a report commissioned by Universities UK.

The report, by law firm Eversheds, says that mergers between US and UK universities and other institutions worldwide could become commonplace. It also raises the prospect of more foreign universities, including American Ivy League institutions, setting up campuses in Britain offering non-UK degrees.

Titled Developing future university structures: new funding and legal models, the study foresees group structures that bring together higher and further education, as well as an increasing overlap between universities and schools, with the former potentially taking over independent schools that are struggling in the wake of the financial crisis.

Glynne Stanfield, partner at Eversheds, said: "It is not inconceivable to believe that in five years' time, in the same way that we have global brands in other business sectors, you could have global brands in higher education."

The squeeze on public spending should also lead universities to think more creatively about accessing new sources of funding, he said.

"As higher education becomes increasingly international, it will tend to adopt some of the business practices that the commercial sector already does. These are simple ideas, nothing particularly radical: all that is radical is applying things that are commonplace in business to the higher education sector."

Such ideas include "management buy-out or buy-in" takeover models, in which universities create a new company that purchases its assets and is floated on the stock market.

State-funded work, including teaching and research, would then be bought in by the asset-rich company.

"Rather than being the delivering body, the university becomes the buyer of the services," Mr Stanfield explained, adding that it would be easy to find funding for this kind of model. "There is a lot of pent-up capital ready to invest in things that are seen to be safe. Education is a recognised market. There is a lot of American capital that, if the conditions were right, would come into the British market."

Following the Charities Act 2006, which toughened up the definition of charitable activity, universities are already considering how to divide their charitable and non-charitable activity, the report says.

It concludes: "Some ideas are more radical than others, but history shows that universities that stand still do not tend to evolve as rapidly as those that innovate."

Mr Stanfield predicted that the rate of change would accelerate if the Conservative Party wins the next general election.

However, Roger Brown, professor of higher education policy at Liverpool Hope University, said it was unclear whether merged universities and group structures would be easier and cheaper to manage than existing models.

And Oisin McNamara, director of research, business and innovation at Northumbria University, cautioned that there was "a balance to be struck between what is most cost-effective and what is in the best interests of universities as autonomous institutions".

The University and College Union also raised concerns about the report's conclusions, particularly on the issue of mergers.

Sally Hunt, UCU general secretary, said: "University mergers are difficult at the best of times, with likely job losses and large periods of instability for staff and students.

"Trying to arrange them on a transnational basis is likely to be fraught with even greater difficulties ... Universities should remain within the public sector, where they are accountable, and not be sold off to the highest bidder."

She added: "It is a fallacy to suggest that private companies can meet the needs of staff and students better or that they can provide a more sustainable business model."

Such concerns will not be quelled by a warning from John Berriman, a partner at financial services firm PricewaterhouseCoopers, that the majority of mergers in the commercial sector "fail to achieve their objectives".

"The technical ability to do mergers will be there within universities, but mergers normally fail on culture," he said. "If you lose key academics, if you lose a sense of momentum about an institution or lose sight of what makes an institution special, then you get into trouble. Vice-chancellors face quite a challenge before they even start going down that road."

Steve Fuller, professor of sociology at the University of Warwick, said that the "more radical solutions" mooted in the report "will require that the Government allow the universities to buy themselves out of state control".

This could mean that universities would have to pay back capital investment from the state, he said - an unattractive proposition.

He also warned that universities may respond by downscaling and becoming more elitist.

"Whereas less secure universities may need elaborate funding arrangements, more secure ones may simply shrink to establish a clearly recognisable identity," he added.

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