Small College America Webinar Navigating Higher Education's Existential Challenges

Webinar December 3

Barnds: Thank you for joining us. The other thing that I wanted to mention is that this is a webinar format, so you can see us. We cannot see you, so you will just be hearing from our guests. However, throughout the entire session, we do invite you to participate. by asking any questions that you might have. There is a Q&A function in the bottom of your screen. and our participants will be taking questions throughout through the Q and A function. We'll repeat the question. and address those questions as we can. If we don't get to all of the questions from participants. Dean Hoke and I will follow up with you later. With that, we'll kick this off. So welcome everyone to this special edition of Small College America. I'm Kent Barndes and I'm joined by my co-host, Dean Hoke. navigating higher education's existential challenges. from partnerships and mergers to reinvention. brings together four seasoned leaders. deeply involved in higher education strategy. law and finance. Dean, I'll turn it over to you.

Hoke: The issues of partnership, mergers, closures, and institutional reinvention are no longer abstract concepts. They're very real challenges shaping daily decisions.

To help us explore these topics, we're fortunate to have four distinguished panelists. with extensive experience in higher education strategy, finance, law, and governance. Let me introduce the first two. Dr. Chet Haskell. who is an experienced higher education consultant focusing on existential challenges to smaller nonprofit institutions. and opportunities for collaboration. Dr. Haskell is a former two-time president and most recently a provost directly involved in three significant merger acquisitions or partnership agreements. including the coalition. for the common good, the partnership of Antioch and Otterbein University. Chet, welcome. Dr. Barry Ryan. is an experienced leader and attorney. who has served as a president. Provost for multiple universities. He helped guide several institutions through merger, acquisitions, and accreditation. Most recently he led Woodbury University through its merger. with the University of Redlands. He also serves on university boards and is a commissioner for WASC.

Barnds: And we are also joined by AJ Prager, who is Managing Director at Hilltop Securities Incorporate. which is an investment bank focused on higher education M&A. He helps institutions manage the partnership process. such as finding partners, doing financial analysis, due diligence.

Most recently, AJ served as an engagement lead to the Seattle University and its partnership with Cornish College of the Arts. AJ, it's great to have you with us. And finally, our final panelist is Stephanie Gold. and head of the higher education practice at Hogan-Lobel's LLP. She spent nearly three decades guiding colleges and universities through transformative transactions. She helps institutions navigate the regulatory requirements and procedures related to such transactions. including accreditation approvals. state agency reviews. and the United States Department of Education process and ultimate approval. So Stephanie, it's great to have you with us as well.

Hoke: A reminder to the audience. You may submit questions at any time using the Q&A function. We'll also take questions at at least two points during. first series of questions I will be asking during the webinar. and at the end as well. So we're gonna give you plenty of opportunities want to find out about. Kent, why don't we go ahead with our first question?

Barnds: All right, I'm gonna kick it off. And this is a question both to Chet and to Stephanie. How should presidents and boards know when their institution is in trouble? What are some of the early indicators that matter most? And I think we'll start with you, Dr. Haskell.

Haskell: Well, the early indicators are actually pretty well known. Enrollment declines. Graduation rate declines. multiple years of unbalanced budgets. the need to dip into unrestricted endowments or quasi endowments. to make a budget work. declining net tuition revenue, expenses increasing faster than the... So these are all... data points that exist. and are well known. The key, I think, is staying on top of the data. and frankly being willing to confront its implications. At the end of the day. No matter what you're trying to do, the financials do matter. And too often, I would argue, a balanced budget. revenue equals expense is defined as success instead. you really do need positive margins. It's central for sustainability. As some folks have said, You don't have a margin, you don't have a mission. And so you need resources for investment in new initiatives. You need resiliency in the face of external factors like COVID or... the recessions, et cetera, et cetera. I know of... two well-regarded Midwest colleges. each with endowments in excess of $1 billion.

One has had eight years, successive years of operating deficits in the order of $8 to $10 million a year. The other one has been generating surpluses for each of the last several years. Well, you know, a billion dollars can last a long time. It 's still a finite number. And so the question is, which would you rather lead? So, I mean, in a more summary fashion, I think it's about constant vigilance. I think it's about avoiding wishful thinking. There should be no surprises. Not in this business, she'll be no surprises. Thank you, Chet. Stephanie, your perspective on this.

Gold: Great. Thank you and thank you for having me today. So as the regulatory lawyer on the panel, I'll first observe that some of the regulatory metrics that are intended to identify financial issues, some of the issues that Dr. Haskell was flagging, do not always do the job. So in particular, the U.S. Department of Education calculates what 's called the composite score, and that uses financial statement data to test the financial health of the institution.

It’s supposed to measure the financial health of financial viability and liquidity, capital resources, ability to borrow, profitability, and the ability for the institution to operate within its means. And a passing score is between 1.5 and 3. I have seen institutions with passing scores that ultimately are not financially sustainable and are in a place where they will soon be unable to make payroll. So sometimes you think you're looking at metrics that might be telling you an indication of healthy the institution is, but you need to understand what those metrics actually are because they may not actually be telling you what they need to be telling you. In my experience, a key indicator for when an institution is in trouble, and this builds Dr. Haskell was saying is when there are cash flow problems. So when the institution is really struggling to pay its operating expenses, that is a clear sign that there's going to be an issue. And Dr. Haskell identified where those can be. come up, you know, if there's increasing expenses, decreasing revenue.

Often it's a timing issue, donor, contributions don't come in when they're expected, tuition isn't paid when it's expected, and You know, the institution finds itself needing to pay its employees, but the money didn't come in when it expected the money to come in. I, you know, when the board starts to be drawing on its endowment. in a way that it has not historically when it's increased the percentage of that draw. or it's starting to sell assets like valuable art, which I have seen, things like that. That is an indication that the institution is trying to come up with liquidity in places that it hasn't done normally, and that can be a problem. I think too, even when an institution has a substantial endowment, and Dr. Haskell I think referred to this, this is a really confusing aspect I think for some because a substantial if it's highly restricted. it's not necessarily going to be of use for the institution in terms of its sustainability. So I have seen institutions with very substantial endowments end up having to close and the public does not understand that appreciate how restricted the endowment is.

So it's really important for the president and the board to get good financial forecasting from experts in the area and to really ask those probing questions and to understand what their circumstances are both in the long and short term. And I'll just say a few other indicators can be negative accreditation actions or negative regulatory actions. The Department of Education does require an institution to report to the department when certain Events occur that the department believes are indicators of a potential financial consequence on the institution. That can lead to the Department of Education requiring a letter of credit or an escrow agreement, which can just— put additional financial pressure on the institution. So again, it's important to have the leadership and the board getting the right expertise and really digging in and understanding what the financials are in the short and long term.

Hoke: Well, let me go ahead and move on to the next question. People may be wondering where we received these questions. We did a survey. about a month and a half ago. to a number of small college presidents and provosts across the country. saying we were going to do this webinar, and we asked them for some questions in advance. of things they really wanted to know. So that's where this initial group of questions are coming from. And with that in mind, direct this towards Barry Ryan. and also to AJ Breger. How should institutions realistically? assess their institutional value. financially, programmatically, and strategically before engaging in partnership conversations.
Ryan: Thanks for that question, Dean. Thank you all. It's a pleasure to be with you today. And it's an honor to talk about something that is so near and dear to my heart and so important for all of us. The first part of that question, Dean, I thought was especially good, which how do you realistically assess because when it comes to doing that for a lot of smaller institutions in particular, It's hard to be realistic. There's a, you've all heard the old adage, know thyself. Well, it's hard to know yourself sometimes either as an individual, if you're a leader of a board or a president of institution. But knowing the institution is even harder because it's hard to get a realistic impression. You can try to do it yourself and you should try to do it yourself, but you need to have some outside perspectives, others that can help you walk through that. You need to find some people. that you can count on who can provide additional. perspective. What's the question you ask?

The financial part is very important. It's critical to any of the processes we're talking about, but that 's not the end of the I would say we should start off with... you know, as honestly as possible, laying out the most important strengths and weaknesses of the institution. And those are both actual ones, ones that are measurable and tangible, but they're also reputational. because there is reputational value, positive and negative, as you go through that process. But what are the kinds of questions that? I think that institution learns a lot by starting to answer and go down this path. The first one really is to say, what's the institution best known for? why are faculty or staff where students attracted. to this institution. That's really important to know. And the flip side of that is equally important. And I'm gonna mix these together for students, faculty, and staff, but academic programs, sure, that's part of it. Salaries and benefits, not usually a positive, but can be. Student activities and opportunities, chances for advancement among the staff or the faculty, job security for faculty and staff, outcomes, graduation outcomes for students, those are all important. Those are the kinds of things you look at.

The physical beauty of a campus can make a huge difference in its structures, ease of access to that campus, surrounding places to eat, hang out for students and faculty and staff. What are the faculty known for? Are they known for being open? Is the institution known for smaller class sizes or is it known for just crowding people into a large lecture hall where you rarely talk to the faculty? So is it more lecture-oriented? Is it more intimate and... kind of a caring atmosphere. What kind of facilities for students and for staff and faculty are there workout facilities or even just walking paths easy parking is parking easy that's one of the major complaints I hear every campus I visit is the difficulty of parking. What kinds of things are there from a cultural perspective? sports, occasional big name guest speakers or performers. A simple, another simple complaint. These are flip side, I 'm talking about the positives and the negatives. Do you have air conditioning for those hotter months in the dorms, in the library, in the labs, or are people sweltering? And I've had that experience as well. And it is a major morale detractor and is also... things they need to think about.

So be open-minded about the questions you ask and think about and you'll have some positive. and some negative probably surprises.
Hoke: AJ, You come from a different side of this.

Prager: Yeah, thank you, Dean. And thank you, Kent and Dean for. and to my fellow panelists. So I'll say that. We believe. that we are in the early. of a large scale realignment or consolidation And so I think it's very important that virtually all institutions take a step back. and understand. where they sit. playing field. Are they? potentially partnering with more challenged institutions. or they're on the more challenge side, potentially looking for. financially strong partners. And I think that's a really important exercise for, like I said, all institutions to undertake at this stage, given the headwinds. that we're all seeing. across the sector. And by the way, it's not. relegated to just small institutions. all institutions are facing these headwinds. So I think the answer will be different depending on where you sit. if you are a small institution looking for a financially strong partner. the answer of value. And again, I mean, this is obviously a merger podcast. And so looking through the lens of merger.

I think it's important to understand what. what would be important to your partner, not necessarily what's important to us in terms of value drivers. Financial drivers are obviously important, balance sheet drivers. Dr. Ryan mentioned a number of them. Oftentimes it comes to real estate value because... that's unrestricted. And it's a lot of these smaller institutions are historic. So they have a fair amount of real estate. But I would also look at it from a risk perspective, I think from a stronger. quote unquote, acquiring institution. perspective, they often look at risks. So how do you mitigate those specific risks? Oftentimes that comes to debt. and labor-related issues. and there's a lot of mitigating factors, but I think that there are... There are strategies in terms of how you position those risks. how you, when you're approaching a partner, what are the different things that you're willing to do? Maybe things that you've thought through to mitigate those problematic. those problematic areas.

Barnds: Thank you, AJ. Appreciate that very much. This is a question for for Chet and AJ. What models of partnership alliances or mergers have proved? most effective. and what can we learn from them? What can our audience learn from those examples?

Haskell: Okay, thank you, Kent. There's no one best way. I mean, every institution's different. Every institutional arrangement's different. and the details really matter. There's no one size fits all. For smaller institutions, one of the principal challenges is scale or lack of lack of scale. So you have to be able to build scale. I would argue there are at least four other key elements. One is, as AJ mentioned, the financials have to work. The numbers have to add up. Secondly, there needs to be an alignment of the people and the cultures, and I can talk more about that. The... The one that often gets forgotten is you need to have an effective implementation plan and the time, frankly, to get it done. Lastly is the whole question of clarity about what your mission is and how what you're trying Most recently, as was mentioned, I was involved in the establishment of the coalition for the common good model. between Antioch University and Audubon University. which is based on. what I would call institutional symbiosis. and a clear vision of shared mission. So Antioch, which is which is basically. a graduate institution that about 80% of the instruction is done remotely.

has taken over and scaled up Antioch’s location-based graduate programs. and there's a complicated revenue sharing. process as a complicated organizational governance process. but each institution maintains its independence. And it's imagined the coalition is envisioned to be a multilateral institution, i.e. that eventually there would be. several Otterbein like institutions, good quality. residential undergraduate institutions scattered around the country that would be able to use Antioch as its sort of graduate school. It 's complicated. It can't work for everybody. It certainly can't save institutions that are in dire straits, but it's an example. an example of creative approaches and folks need to be more creative. in this, in this one. environment today. There are two other considerations I'd make where we put forth. partnerships of any type. are complex and time consuming for the leadership group, for the president, the provost, the CFO. all of whom have heavy day jobs. And. It's not just that they have a day job, the opportunity costs for their scarce resource, their time is very high. And these are things you can't delegate. You can't say we're gonna have a committee of folks that are gonna do this merger discussion with other folks.

It has to be the leadership. That's one thing. The second thing, I know more practically. it costs money to even think about this. It costs money to get the specialized external legal and financial help that's necessary to deal with all the issues that Stephanie and others have mentioned. You also need a project manager or a point person who can bring all the details together. It goes on and on and on, the whole list of these things. It is a series of expenses. a long period of time in this case, because these things don't happen quickly. There's no one best way. It takes a lot of a lot of work Everybody should be thinking about how to do it in my opinion.

Barnds: AJ, your perspective on this.

Prager: Yeah, thank you, Kent. So I just want to address one, what I'll say is an area that we often see as a misconception, which is partnerships can only happen one way. It's merge or that's it. I guess merge or not merge. But the way we view it really is a spectrum. of multiple different types of partnerships and a lot of variation in between.

On the, I'll say the bottom end of maybe limited engagement would be something like a back office sharing agreement or articulation agreement between two institutions where there's cost sharing, program sharing, something like that where it's I'll call it loose, maybe loose dating. and then on the other end of the spectrum is a full blown merger. where the two institutions But like I said, there's a myriad of different potential or options in between those two poles. And we've worked on a number of different of those types of arrangements and it really depends, you know, maybe to Dr. Haskell's point of mission execution. ultimately executing on your mission. and how can a partnership structure optimize that execution. I think that's the appropriate lens to look through. I do want to mention two... two maybe specifics within this area. One is, We do have some clients that have identified. I'll say hi. priority target institutions that they see as. likely to be at going concern risk, but they're not quite there yet. And so how do you approach an institution like that? the strategy that is put in place is what we call dating to marry. which is maybe beginning with some non-committal.

communication, maybe the provost get together, hey can we do a cross-divisional program between our two institutions, maybe we can share some IT contracts, something like that where the two institutions begin to communicate slowly. and what we call dating slowly, get to know each other a little bit. Maybe when the time comes where the challenge institution is looking for a partner, the... other institutions is the natural partner. The last thing I want to mention is a transaction that Stephanie and I worked on recently, which is the Seattle U. Cornish College of the Arts transaction. And there was a structure that was utilized. well in that transaction, which is called an asset contribution And in this NASA? contribution agreement, it's... technically not a merger. It's one institution contributing its assets and liabilities to the other institution, and then subsequently closing. after those assets and liabilities have been contributed. The great benefit of, and I think this is a great example of how structure can really. the success of a transaction. In this particular instance, the all of the faculty and staff contracts. we started at. at Seattle U, meaning that any legacy labor issues.

pension issues, collective bargaining issues, those types of things which can be potential liabilities or concerns, challenges for the acquiring institution are cleared out. And again, just helping facilitate. and starting afresh. which a lot of, I 'll say, challenged institutions. can benefit from.

Hoke: Fascinating. By the way, This may be the first time I've actually seen a dating game reference used in terms of merger and acquisition. So well done, I like that. Let's talk a little bit more about a question that came up. a number of times as we were asking. presidents and provosts some questions they may have. And that's, of course, the legal side. and regulatory. Stephanie, I'd like you to lead off on this and then Barry. What legal? or regulatory issues. most often derail or significantly delay. a potential merger or. And what can a president do to mitigate those issues?

Gold: So I'll highlight two. due diligence process. So this is the process by which the two institutions really the sort of the the, you know, or, or. digging in on the records and history of the institution, the compliance record, the finances, et cetera. to really understand and assess like what are the assets here?

What are the liabilities? Where is there going to be? How do we know if this is going to work financially? Where are the synergies? And a challenge with that due diligence process can be that an institution may not have the human resources, may not have the record-keeping resources, may not have just the systems in place to do that. in a prompt and effective way. Institutions, particularly older institutions and ones that maybe have been financially struggling just haven't been maintaining themselves the way maybe a for-profit business does through a due diligence process and have all that information readily available. So that can slow the process and getting project managers on board and getting people dedicated to being able to facilitate that process can help. The regulatory process is the other. item that I want to talk about in terms of what can delay or derail a potential transaction. The regulatory process can take a long time. Typically, the institutional accreditors have to approve a transaction. before it occurs. Many of the accreditors address these matters at meetings that happen only a few times a year, maybe three times a year. You have to time your submissions to align with those those meetings.

There can be a long time between signing an agreement to do a strategic transaction and actually being able to consummate the transaction. And during that interim period, there are things that can sort of go off the rails and about whether there needs to be some sort of financial. that's happening during that period for one of the, for an institution that may otherwise be struggling or how to manage that process from a communications with stakeholder perspective. If the transaction involves a merger or other, kinds of changes in ownership and control. the U.S. Department of Education has to approve that transaction and that process happens after consummation of the transaction. The application is quite substantial. And... the institutions have to provide audited financial statements for their most recently completed fiscal year. So you may want to try to close your transaction July 1, but if the school's fiscal year closed June 30, you're not going to have audited financial statements. to give to the department, you're not going to be able to proceed with that process. So you've got to wait until you have those audited financial statements done. So all of this sort of just takes time. and patience.

So to mitigate these risks, it's really important to develop a plan for that regulatory process and to get everyone on the same page about it. And this is going to sound self-serving, but I think it's important to have regulatory council involved. They can help to educate. and to manage expectations about what can seem like a frustratingly long process that does not allow for institutions to be nimble. And there are ways to structure a transaction to try to address this, and AJ really alluded to this because if a goal is to combine two institutions, maybe the path is not a traditional legal merger, maybe the path is having one institution close and then contribute its assets, close as an institution, a metaphysical institution, the legal entity may continue for some period of time, but to have that institution close and contribute its assets. That is not a change in ownership and control. It can raise other issues. You need to make sure you've got teach-out plans. Students may be able to get their loan discharged, their federal loans discharged because their school closed. that you need to just put in place a good communications plan. to manage sort of the emotional and expectation, emotional aspects of a closure and the expectations of students and employees.

But so that structuring aspect can be a way to navigate some of those regulatory process issues.

Hoke: Barry, you've just gone through this process recently.

Ryan: Yeah, actually, everything Stephanie said, I 100% agree with. There really are two, I would kind of divide up these things into two categories. One is there are some things you can anticipate in this process and There are other things. There's no way you're going to anticipate things are going to come up that you did not see that coming. So but in both of those, there's way to ways to prepare. So when you're dealing with government entities or you're dealing with creditors as well, you need to have good relations. If you don't have a good relationship going in, this road is going to get a lot rockier. So be close with your liaisons. Be close with your representatives, state representatives even, depending on where you're located. a big difference. Have those good relationships, build on them, and once, and you keep them posted, keep them aware of what's going on. That is not wasted time. That is very valuable time. So they care about the institution, they care about the community. and they want to know what's going on.

And then there are the things that you kind of unanticipated. There may be some things hiding that are gonna come out, either through the due diligence process that Stephanie mentioned, which is. painful and agonizing and slow. And you can't predict the timeline on that. You just gotta take a stab at it and then figure you're not giving it enough time. It's gonna take longer than you expect. But some things will come up. unexpected risks, unresolved issues, potential claims that might that may arise. You got to have good counsel on all of this because that can be the difference between And thank you. not life or death, but the success of a deal that you need to have. If your creditor's giving you a little time to work on something, say, hey, you've got two years. Don't say, wait a minute, we'll be done with this by two years. Get those things fixed now. If you have, and then let them know about it. Let them know you're working on it. So do that. Don't forget about banks and lenders. They can really muck up the process. And vendors might stop performing. providing you things on credit.

If they hear that you're thinking about something significant with your institution, they may start demanding cash upfront. That's going to mess up your cash flow that you're already worried about. And the same thing with banks. If you have banks that are holding, you know, estate mortgages or whatever. And that can raise questions for potential partners. So you think about the potential also of... donors either current donors or future donors. When they hear about this, how are they going to hear about it? What are they going to be thinking about? You're counting on, you're projecting certain kind of income from development, from donations. It can be impacted. So those are things you can mitigate them. by thinking for it, planning ahead, and assigning good people to work on it.

Barnds: Thank you, Barry, and thank you, Stephanie. Our next question actually builds upon Excellent question we've gotten from one of the participants. And that's all about. Why don't... boards and presidents. what prevents them from acting. Dr. Ryan and Dr. Haskell, I'm going to call upon you to answer this question to the best of your ability, which comes to us from one of our participants, but was also one of the questions that we had.

What prevents college leaders from acting early? and how can presidents and boards overcome inertia without signaling. desperation. Probably the key. for many of our participants. And we'll start with you, Dr. Haskell.

Haskell: Great, thank you. It is a key question. Any board or president that's not at least thinking about alternative jobs alternative futures. In my view is not doing their job, regardless of what their situation is. you know, as noted earlier. There may be data, but it's not being paid attention to or people don't understand it. There are typical responses to enrollment declines. We're going to add new programs. We're going to solve this in various ways. We're going to delay it. to buy some time, these are not effective because there's no magic enrollment growth formula out there. Believe me. One key problem is many people don't want to change. Bridges mean some people, including presidents, lose their jobs. qualities that make for a good. President internally. differently about the future. Volunteer Boards. that are full of alumni. resistant to change. because they have the loyalty to the institution. Another problem is frankly the lack, a general lack of information. that's out there because of fear.

There are fears about creating self-fulfilling prophecies that, oh, we're in desperate times. There's no clearinghouse of institutions that are exploring change. finding a potential partner sometimes. is pretty obvious and you can see what a good fit would be. And AJ gave an example of that. getting information on possible partnerships is not easy. all has to be done quietly and people just simply don 't want to do it. as I mentioned earlier, at the same time. the day-to-day institutional leadership. takes time away from this important test. all sorts of pressures. that don't move in the direction of, oh, we need to think about change. very human pressures. That's a reality. Everybody knows that there are problems out there. You don't want to think it's your institution that's the problem.

Brands: Thank you, Chet. Barry, your perspective on this.

Ryan: Thanks and Chet, those are spot on. Two things I think of are that most things fall into these two categories. The first one is ignorance. And that's not a pejorative, I'm saying ignorance, as in not knowing. And the recent presidents and board chairs and other folks, senior folks, don't know.

how bad a problem is or how deep it is or where it is, is they don't ask. And that's sad, but I have seen it over and over and over again. I have a hobby that some people think is a little macabre, and it's not really a hobby, but. I love studying airplane crashes. and I love NTSB reports. because you learn so much about what went wrong that you can help prevent a problem in the future. There's amazing similarities between universities in having problems and airplanes crashing. And there's no time for this. now but I would just a tidbit for you. Many, many, many examples of crashes are because somebody in the flight crew or somebody in maintenance or somebody in the tower just neglected to ask a question. And because they didn't ask the question, because why didn't they? They were embarrassed to ask, or they thought, oh, somebody else is taking care of it, or I would have heard it. those end up being fatal errors. And so we gotta ask questions, that's number one. So ignorance, and then number two, and Chet, you were talking about this, is fear. It's the second main reason why. leaders don't act in time.

And it's probably the most single most significant reason why we as individuals or as the human race fail in meaningful endeavors. We're afraid of making a wrong decision, therefore we don't make a decision we think maybe things will get better. Fear can increase. us and it's it's not uh... not conducive to making good plans in plans are going to lead to the health of an institution fear of loss of our own job fear of whatever fill in the Again, you gotta spread out. Don't try to figure it all out yourself. You gotta find good people with good perspectives that can help you navigate through fear and you don't wanna communicate fear to the community that you're leading. That is the last thing you wanna do. No matter how afraid you are, you wanna be able to communicate some sense of optimism. that's realistic. So ignorance and fear, those are my big two.

Hoke: That's interesting indeed. airplane analogy, first when you start saying that, I'm going, I wonder about this. But no, I think you really bring up. a very legitimate point. in terms of... I'm afraid to ask the question. I think those are. rather remarkable statements. And I think you're onto something about that.

But as we continue this conversation, one of the things that comes up... is trying to define what is success. And I'd like to ask Stephanie, and I'd like to ask AJ. about this. What distinguishes successful transactions from unsuccessful ones? What are those warning signs that a partnership? may not just work. Stephanie, why don't you go ahead with that.

Gold: Sure. In my experience, a successful transaction is one where the parties have visions that align, where they trust one another, where they're communicating effectively with one another. they 're realistic in their expectations and where everyone is rowing in the same direction to get it done. And I think building a bit on what Dr. Ryan was just saying, I think it can really help too if the president and the board of the respective institutions have a very strong relationship where there is a lot of trust between the president and the board and there's some, like, that they've been working together and there's some stability there over time. Some of the warning signs where it's not gonna work is where there does end up being kind of mission misalignment. unrealistic projections or expectations and a sort of a cultural disconnect that just starts to relationship.

I think I've also seen where it might start to not work as if there's stakeholder dissatisfaction and kind of misinformation campaigns, and that can start to spiral into litigation. or regulatory challenges where the regulators are concerned and and sort of investigating it now in sort of a, in a more negative way. I think this is navigable if the parties are patient and risk tolerant, but sometimes it can just sort of start to cause cold feet. I do think communication is critical. on so many levels between the parties. among the stakeholders. with the regulators, I really want to. on something Dr. Ryan was talking about. I am a firm believer in like those good relationships with the regulators. Start them before you're getting into these transactions so that you have developed that trust. I have made it in the transactions on which I work on making sure that there are no surprises for the regulators, that they are hearing about things before it's in the Chronicle of Higher Education or Inside Higher Ed or in the local paper.

that's everyone from the attorney general at the state if they're involved or the accreditor or the Department of Education, you know, making sure that they're aware of what's happening before they're reading it in the paper and making sure the parties understand the relevant a creditor and regulatory standards and policies so that. the whole alliance or strategic arrangement can be structured in a way that's going to actually result in achieving those approvals so that it will be a successful transaction Thank you,

Prager: Dean, and maybe just to repeat the question, distinguishing between successful and unsuccessful transactions. I'll just say, number one, I agree with everything, vehemently agree with everything Stephanie mentioned. I'll say in particular, The relationship between the board chair and the president is paramount. When there is a poor relationship that can... completely derail a transaction. And I'll say that we often look at that relationship, whether we take on a client or not. If that relationship is a weak one or there's disagreement, it's just, honestly, there's little point in moving forward with the transaction because. very unlikely to be successful. Beyond that, I do want to mention four things. One is preparation. is due diligence.

Three is having a project manager, and four is reiterating what Stephanie mentioned around the accreditor engagement. So number one around preparation. I think that is maybe... beyond the... the relationship of the president of the board chair. Having a strong strategy pre-merger is critical. maybe goes without saying it's absolutely critical, but I'll say it's something we see often. Either some school gets a call over the transfer from another school, should we look at this or not? And they sort of start moving down the pathway before you know it, they're in a transaction. I'll say from our perspective, critical to. take a dispassionate view of of a partnership. What are the types of attributes that you are looking to accelerate? What does your mission look like in the future and what are you lacking? and therefore what are the pieces that can really kind of complete your puzzle. And so I'll say that is a critical exercise. in terms of finding the right partner and finding the right partner is paramount to a successful transaction. Number two, due diligence. Again, a critical aspect, I think this has been mentioned a couple of times, but going through the due diligence process in a robust.

well-informed manner in an organized fashion is absolutely critical. Really understanding your counterparty. What are the key... the key risks. How do you mitigate those risks? A lot of that honestly is empowering your deputies or your cabinet within your institution because they're really the experts in their field, your provost, your CIO, your CFO, your vice president. Right. Having them. really help dig into the detail. Number three, having a project manager, I think is absolutely critical. Having somebody that's organizing, pushing the pace, pushing the project forward, that's really helpful. very difficult to move a transaction forward unless you have somebody holding the baton kind of pushing. And then lastly, I'll just mention a credit or engagement. I think Stephanie mentioned this. They're the primary gate. primary gatekeeper on transactions. And so having that early engagement with the creditors. and giving them say. as to how this transaction is gonna unfold. taking a big step back, accreditors, their mission is to protect students, which. oftentimes is the goal of a merger or transaction anyway. And so there's really alignment. from a mission perspective of the accreditor and the transaction.

And so again, engaging them early, giving them an understanding of what's to come, giving them say as to the transaction, I think are really powerful. attributes that can lead to success.

Barnds: Great, thank you very much AJ for those comments. We're going to turn to the topic of communications. I do want to acknowledge that we've got some really thoughtful comments in the Q&A, Share those comments towards the end of the podcast. We also have a couple of really great questions, which we'll ask our panelists to address. as we move towards our next Q&A section. I'd like to ask Dr. Haskell and Stephanie to. address this question which deals with the communication aspect. So how should leaders handle transparency? communication and confidentiality at different stages. of partnership exploration. This is, I think, one of those trust building questions. that is so important. And if we could start with. with Dr. Haskell and then we'll move to you, Stephanie.

Haskell: Great, thanks Kent. First, I want to underscore what Stephanie and AJ both said earlier about the importance of communication with the regulators, the accreditors and the external bodies. I mean, that's key.

You can do that most of the time in some degree of confidence and it's confidentiality, but you have to keep them apprised of what you're doing. But you have an internal problem. in terms of how do you even talk about these things without scaring everybody. without creating again self-fulfilling prophecies. et cetera. I think you do need to have a some sort of process that allows for. clear internal representational discussions. And I'll give you an example. at Antioch when Antioch went into the whole process that led to the coalition. they created. an internal committee that had, I think, three board members. It had the president, it had the provost, couple of other senior administrators, and it had four. elected faculty representatives. and they were called the Affiliation Committee. They were all under NDA. And so. throughout the entire process, everything was shared with this group.

And it built up, even though the details weren't obvious to anybody outside the group, the fact that there were these discussions going on, the faculty members could say, yes, we've been involved in these discussions, went a long way towards building the, sort of internal trust that that the institution was trying to head in the right direction and it was to try to benefit the institution and everybody in the institution. Um, the. You know, the way Antioch got into this originally was pre -COVID. There was a board retreat that involved faculty. you know, what's our future look like? And the future was... Well, we have some great ideas, some great possible new programs, et cetera, et cetera. We don't have any resources to invest. And so therefore we need some sort of partner. And that led to elaborate processes. But people knew that we were having those discussions. The other part of it. The presidents of both Antioch and Otterbein in this particular case were very careful to keep communicating with with the overall communities, not saying about the details, not answering those kinds of questions. But being honest that these things were being looked at because everybody is worried.

And so everybody knows that most of these institutions are in danger and are at some level of risk. And being able to confront it in such a way as you can build trust while at the same time. the details under wraps so you can have a competent discussions with potential partners.

Gold: Yeah, one thing tying that to the prior discussion is sometimes when we were talking about due diligence, a challenge there can be that it can be... that due diligence process can be hindered or delayed if not a sufficient number of people within the institution do know about the potential transaction, the ones, the people who need to be providing the information and having the discussions on the due diligence. front. So I have seen that create some real tension in whether you know, at the success of a transaction is that. You know, there isn't this disclosure internally with the people who need to be involved and at the table in that due diligence process, and that can create some challenges. But some of the dynamics at play. Um, you know, can be the existence of a non disclosure agreement or an NDA, a determination of a lack of financial sustainability if the boards actually made a decision that it is going to need to close. you have stakeholder considerations and state open records laws if you 're a public institution.

So when to go public can be a matter of strategy. but also a matter of legal obligations or both. So if it looks like an institution, you know, is on a path of financial and sustainability. And certainly if a decision has been made that the institution's gonna have to close. a board has to really think carefully about like, is it time to make an announcement? Students and regulators are gonna need to know about that decision and what the plan is. And it can be really hard depending on the point of year. Like if it's the spring and students have just been offered admission to the institution and yet they need to know. in order to make an informed decision. And there's a legal exposure aspect to that, but probably also sort of a moral and ethical one. Making an announcement can actually prompt, in my experience, opportunities for the institution if they're they announce that they're going to need to close at the end of the next year. you might suddenly find yourself being approached by institutions who had no idea that you were an institution that had some issues. And now there are institutions out there that. think that you may be an appealing strategic. partner in some sort of a transaction. I have seen that happen.

where an institution announced closure and suddenly there were seven offers of strategic alliances. So there can be a silver lining to having to make that very difficult public announcement. if there is a nondisclosure agreement in place because you're already in discussions, that can create some complications about confidentiality and when you can make certain announcements. You ought to be able to still communicate with your regulators. and that's something to consider in the context of what the terms of an NDA might say. And it can be challenging for a public institution where there are state open records laws. This came up a couple of years ago when the attorney general of the state of Idaho sued the University of Idaho when it was considering a transaction with the University of Phoenix, claiming that the Board of Regents had violated the state open records laws were unhappy that they hadn't been told. So it's really important for legal counsel to be working with the communications and government relations folks to try to navigate the appropriate time to be making announcements and what to be saying in those announcements.

Hoke: Well, let's kind of continue down this road just a little bit more. about the communication side of this. Barry and AJ, I kind of like your perspective on this, please. How will partnerships or mergers affect key stakeholders, the students, the faculty, the staff, alumni, the community, who are traditionally maybe outside of that initial group that's being talked with. leaders approach these conversations, which I think is a very... challenging thing to do.

Ryan: That's critical, critical, critical. And it's not just critical what's communicated, but when it is communicated. That's a very delicate dance. But the reality is every single one of those stakeholders, we just mentioned, are going to be affected. And my focus... first and foremost as a student, but it flows through all the other stakeholders. The number one thing that every stakeholders group is gonna experience is what we talked about earlier, fear. Everybody's afraid of what the impact is going to be on them. And so you've got to remember as a leader, you're dealing with people who are afraid. Okay, and they may come across as angry or whatever else the emotion is, but the fundamental thing going on in their mind and heart is fear. How do you alleviate fear? You do it a couple ways. First of all, if you've done your job right, you would have been building up a relationship. of war of trust with each of these groups.

You've been consistent, you 've been honest, you've been as open as you possibly can be within the limits of confidentiality in the law. And so you have that. that reputation so people know when you talk. You're telling the truth, even if you know they can't tell you everything. You know that they, number one, have your best interest in mind, and number two, that they tell the truth. That's a key way to do it. And the other way to do it is by, you're just gonna spend a lot of time listening. You're going to spend a lot of time listening to individuals, to groups, student groups, faculty groups, large, small individuals. You've got to pay the dues on that one. You've got to listen and hear. and genuinely hear and not be so quick to answer. You're missing what the person's expressing from their heart. That makes a huge difference in how this, any kind of transaction like this takes place. So I would just, I would emphasize that and you communicate that by taking a lot of time. and you work on your time, you have when's the right time to do that.

You know, assuaging fear is not an easy thing to do, but it starts by genuinely caring and building up as much reservoir as you can, and then being consistent through the process and consistently telling the truth and consistently. being honest and open as open as you can be.

Prager: Well said, Dr. Ryan. I'll say that there's... maybe two strategic components to consider. One is timing and the second is the message. Just around timing, we view these transactions as incredibly sensitive, very bespoke. and the message. and the confidentiality needs to be maintained. in complete confidence. on a need to know basis only. And that gets to something that Dr. Ryan mentioned many times, which is the fear. Because once, I would say, certain groups find out about the transaction that's in process. messaging, they will control the messaging, which likely will not be to the benefit of the transaction. because oftentimes it's viewed through the lens of what's best for them, and oftentimes they review the transaction as is not best for them, whether that's true or not, that's up for debate. And often, obviously, we would disagree with that. But I'll say just, we use code names always for transactions.

Again, we bring individuals on a need-to-know basis only And again, that's not a control. item as much as it is a protection of the transaction. Again, just to allow us to control the messaging I will say that as a transaction progresses, the risk increases of leakage. And so I would say generally speaking, not always, we generally recommend that there's announcement at LOI execution, that's letter of intent execution. which is really the first milestone of two institutions to a blueprint of what a transaction would look like. Oftentimes. we would like to bring in a PR expert to help control the messaging unless there's that expertise in house. Oftentimes that's not the case at small institutions. Oftentimes it needs to be coordinated with the other institution via town halls. All the constituents need to be addressed. Obviously that's students, faculty, staff. incoming students, parents of incoming students, alumni, etc. And so there needs to be a forum for each of these constituents. The messaging needs to be... consistent and it needs to be coordinated with the other party. The last thing I do want to say is it's really important that the alternative be understood, meaning status quo generally is not. a realistic pathway.

That's why often times you see two institutions coming to a partnership. And so I think that it should be a key part of the messaging in that. Really, the path forward is an improvement over the alternative. Often times that could be closure. for a school some major restructuring or realignment because like I said, the status quo, it's not a, an optimal operating profile clearly if a school is struggling. And so really the pathway, and this is the truth, is that the partnership to the benefit of. all constituents. but certainly staff, faculty, alumni, donors.

Barnds: Well, as you know, our audience is primarily focused on small colleges, and one of our participants has asked two really good questions. which I think really focus on small colleges in particular. So we're going to go a little bit off script. And I'm gonna ask Dr. Haskell and Dr. Ryan, To address the 1st question that we got from this participant and good to see you Lamont who I know it mergers deep partnerships or pursuit of financial solutions. How can institutions ensure that reinvention strategies Do not worsen. inequities for first generation low income. or racially minoritized students.

Such an interesting question, especially for small colleges and colleges, perhaps in rural areas. So when you think about those distinctive missions, this kind of fits right in with our audience. So, could I ask Chet, if you wouldn't mind. taking this first and then we'll move to Barry. And then I think Dean is gonna ask the follow up question.

Haskell: Okay, thank you. It's all about mission. and the clarity of the institution, regardless of its structure or where it thinks it's going, is about a fulfillment of mission. And in most of these institutions, part of the mission is access to educational opportunity. Right, and so being able to provide. that kind of access to the kinds of populations that are mentioned in the question become central. And in my view would be one of the main reasons you'd want to be thinking about a partnership relationship you to do precisely that. and staying focused on mission, I think is crucial. I mentioned before the whole business about no margin, no mission. Well, it's reverse is also true. You don't have a mission. You're, it's gonna be, you're gonna have trouble. getting financial margins as well. And so particularly for small institutions that need to be distinctive. while building scale.

and increasing enrollments, et cetera. You need to stay focused on that. And a partnership is frankly one way to do it.

Ryan: Thanks, Chet, want me to go ahead? Real quickly, so first of all, I am a first gen college student from a blue collar family and this was a big deal for me going to college. I have a deep heart. for folks in that situation. The people, the students who were gonna first hear You know, we have, we as higher educators. have taken their treasure and their time and their hopes and their dreams and they've placed their confidence in us, in trust in us. I take that as seriously as I take anything in this life. So we had better be very, very careful with that. And that needs to come out in everything that we do and say. that that needs to be the bedrock consideration. So two things, one is a general and one is a more practical. First of all, if you're in some kind of conversation about a new type of relationship with another institution, and those are your values. you better be sure they have the same values. Otherwise, you're in bed with the wrong person. You need to be sure. that those values match up.

It's not going to work anyhow, and you're going to hurt students and a lot of other people in the process. So make sure that alignment is there, and that's bedrock. Secondly, as you go and you structure a deal, and you've heard all the things that these have been sharing about. There's a lot of pieces to any kind of a deal or an arrangement or an agreement of whatever form they come together. And it is very possible if you share the same values to build protections in for students in those in those Situations so that there is a guarantee And again if you can't come together on that one don't don't pursue the partnership. It's not good for anybody.

Hoke: I want to ask this. because we have multiple perspectives here. work with colleges, but I think it's an important question everybody kind of take a brief answer on. the question that we were asked. is that how can mission driven faith. based institutions leverage their in reinvention rather than viewing merger partnerships. as a threat to theological and vocational purpose. I want you to to lead off. Stephanie, I'd like your opinion and then.

Gold: I mean, I think it's part of it's just what we were just talking about in terms of mission, being clear about why you exist as an institution. As AJ mentioned earlier, we're in the early stages of a major consolidation in the higher education space. There is a role for. all sorts of specialized institutions including faith-based institutions. Faith-based institutions typically have similar. You have lots of small. When you go and look at all those small colleges out there, a lot of them meet that kind of. distinction. And it seems to me you don't want to give that up. you need to build on it. It's part of how you differentiate yourself from all the other institutions that are out there in the marketplace. There's this, you know, the highly competitive, as you know, you got all the issues about declining demographics, etc, etc, etc. And how do you How do you separate yourself from the crowd? And part of that, I would argue, is focusing on that kind of mission.

Haskell: Yeah, so I think. Part of this goes to having those discussions with a potential partner. So when you think about... what if you're starting to engage in those discussions, I think as an institution that may have a faith-based mission is you want to understand why the other institution wants to do this transaction. and what their vision is, and what will be some of those sort of legacy aspects of the arrangement that are going to be continued. And to be able to... like explain to the other institution why maintaining elements of that faith-based mission are so important to the overall... like success of like both institutions in the long term. And it's ultimately gonna be what's gonna enable the institution to be able to convince its stakeholders that this is a strategic. transaction that makes sense for it. So, you know, what are those kinds of ways in which the mission of the faith-based institution can be continued in terms of students and employees and how they're going to be supported and the financial commitment to continuing sort of the programmatic features of what made that institution. with its face-based mission, what it was. So I think it's part of kind of having that discussion and making sure you're understanding, like what is the vision here for the Alliance? And then what are you explaining is important to your institution in terms of like actually making that alliance work.

Hoke: Barry, then AJ, and then we'll have one final question. very briefly.

Ryan: So I've been involved in a merger situation that did involve two faith-based institutions that on the surface appeared to be very different. But as we got to know each other, It was clear that there was much more in common than there was that was not in common. And that goes back to, and AJ was talking about this, Stephanie was talking, you're all talking about this building that trust between the people, the leadership in both institutions. It takes some time to get to know each other, and then you find out, maybe you find out that you have a lot more in common, and this becomes a much easier... process to take. On the other hand, I've seen a couple failed ones that they just couldn't get over the fact that I'm sorry you are different than we are. We have our 39 points and you have year 16 and it's just not going to work. harder still with some faith-based institutions and secular or non-faith-based institutions. It can be done, but those are very custom situations. There's not one size fits all. on that. when they get that it could be a benefit to both, and if done right, it can be. Hopefully, wiser folks will prevail in that process.

Hoke: AJ, you had the last word.

Prager: Yep, I'll be quick because I think this has been well covered. I'll just say that... in my experience personally. And I think Dr. Ryan alluded to this. oftentimes straight-based institutions. have similar missions to secular institutions. We always look at transactions, at merger transactions, through the lens of mission and accelerating mission execution. And so oftentimes there is... mission alignment between faith-based institutions. and non-faith-based institutions. Look, I'll also say that faith-based institutions is a huge banner and there's a lot of nuance under that banner. and a huge spectrum of what that faith how they, what their culture is. how they operate. And so. the question might be more aligned to how do the cultures aligned as opposed to the missions. But I'll say that in my experience that oftentimes cultures can align between faith-based and non-faith-based. It just, it really is a depends on the specifics of the institution.

Barnds: So I'm just address a couple of the comments that have been made in the Q and a, and then I 'm going to ask Stephanie and AJ one final question before we wrap.

But there and actually Dean, I think we can probably spin up another webinar based on some of the comments and questions. from the Q&A section. We had one participant describe. colleges and universities is cultivating irrational loyalty to the institution. which runs counter to the thought of mergers and partnerships and alliances. You know, we might think about how do we overcome that? irrational loyalty. that emotional appeal. So really, really great comment. Thank you for making that. Second participant made a comment about the fact that board members oftentimes don't know. Um, how to act. or ask the right questions, given the way that higher education oftentimes designs, recruits, on boards, their board of trustees. So again, perhaps some great fodder for an additional podcast on this topic. How do you prepare your board to ask the right questions? and be prepared to act. The other was a really interesting suggestion and comment about the fact that in a merger or acquisition there are ways to preserve the identity. of an institution that might be being acquired by establishing the Institute or renaming a particular school in honor of the institution that's acquired. great comments and maybe some material for a future podcast. that includes the same four very, very talented and informative guests.

But I want to ask one last question before we wrap and this is for AJ and Stephanie. because I think this is oftentimes overlooked. And that is the question about what is the most hidden cost. in mergers or enclosures? What's the cost that's oftentimes overlooked? AJ, we'll start with you and then we'll turn to Stephanie.

Prager: Yeah, I think you can. I think that's a great question, and I'm glad it was asked. management time in our experiences is the biggest hidden cost. of a transaction. These types of transactions all encompassing, they require significant significant employee time. And in our view, that's the most valuable resource of the institution is management's time. And so whether to pursue or not to pursue a transaction is a really critical decision because... you're tying up. if you are going to be pursuing. you're going to be tying up your most valuable resource. for... a considerable amount of time. I'll also say passing can be risky. And that's why I get back to the preparation. response, which is that is a really critical element for any institution. I think it answers a lot of maybe the other. questions peripherally, which is spending the time up front. to determine where you sit.

in this landscape, are you? a strong institution looking to benefit from. from the distress? Are you a smaller institution that should be prepared for the future and forthcoming challenges. And maybe. I'll just lastly say that we recently went through an exercise with a board of a liberal arts institution on the west coast. which was an exercise made up three. institutions and say, would you? with these three institutions and we went through them individually and the board, it was very fascinating to see how the board responded, but it was a, I would say, an innocuous I would say Nanaki was... exercise to help educate the board to say here's what's happening in the sector. And these are the types of transaction that might be coming your way and how would you respond to it?

Barnds: Thanks AJ. Stephanie, you have the last word.

Gold: Yeah, I mean, this, as the lawyer, so I think AJ really nailed it with like the time that takes management to invest in these sorts of enterprises. I'm gonna make the observation, despite being the lawyer, that I think there's a lot of emotional cost associated with these matters, harder to... necessarily figure out how to navigate that other than through really good communications. These are very stressful situations for students. for faculty.

And I think I am constantly needing to remind myself as the lawyer who's just working on the deal documents to get the deal done that there are a lot of humans behind this and it is a cost on them. Their institution may be going to be in danger. They may not be getting the education at the institution they thought they were going to get their degree from. There's just all those costs and trying to make sure it's getting looked at and appreciated through those communications in the process, I think, is really critical.

Hoke: I'm afraid we're out of time. I want to thank everybody for being with us today. And I want to thank especially the people, great questions. And you're right, I think we now have at least four more shows right now for the podcast based on all these questions and comments.

Let me do a little bit of promotion about small college America. If you 'd like to learn more about Small College America, go to our webpage. It's www.smallcollegeamerica.net. where you can find details on upcoming episodes. You can contact us there, suggest topics that you'd like to cover. By the way, I think this will be important. People are going to already starting to ask about replay.

This webinar will re -air. as a podcast. on December 9th in the morning. We just simply need to be able to take what's being recorded today, do some minor touch-up. and we'll have it. on the air for you. So it'll be there for you to watch over again and pass the word on to your friends. Also, this webinar is made possible. and the underwriting support of Edge Alliance Group. a higher education consulting firm that champions small colleges and the communities they serve.

Barnds: On behalf of Chet. Barry, AJ, Stephanie, Dean, and myself, we'd like to thank you for being a part of this conversation and the work that you do on behalf of your institutions Have a great rest of your day.