Overview of mergers in the sector

There are many examples of merged institutions in the sector, they include mergers between further education (FE) colleges, mergers between higher education institutions (HEIs) and some examples of FE/HE mergers. Overall institutional mergers have been a more common response to financial difficulties than Shared Services which are more commonly viewed as a means of providing improved services.

Mergers have been most prevalent in the FE sector: there has been a considerable reduction in the number of FE colleges in existence although it is difficult to be precise about the figures due to different definitions. KPMG (2010) noted a reduction in the number of FE colleges in the UK from 492 in 1992 to 376 in 2008. The figure of 376 is derived from DIUS (Department for Innovation, Universities and Skills) (Further Education Colleges - Models for Success, 2008).

The AoC (Association of Colleges) however listed 414 colleges in 2011. KPMG (2010) predicted that there would be no more than 270 General FE colleges in 2010 and indeed the AoC listed only 220 of this specific type in 2011 although DIUS (2008a) recognised only 196 in 2006/07. What is clear is that the reduction in numbers has resulted largely from mergers rather than the definitive closure of institutions.

Payne (2008) identifies 72 mergers in the FE sector between 1993 and 2008 resulting in 43 merged institutions. The number of mergers is greater than the number of resultant institutions because some colleges merged two or three times in that period.
The Learning and Skills Network (Calvert 2009) identifies two main drivers for FE mergers:

• Rescue: in which a struggling college is 'rescued' by, and usually amalgamated into, a stronger college
• Strategic: in which two colleges that are already fairly successful merge because they believe they will be even stronger if combined

The mergers that have taken place are commonly categorised as Type A and Type B:

It might appear that Type A relates to a more strategic alliance and Type B (commonly referred to as the 'takeover' model) represents a rescue situation. Type B is by far the most common model but it is also more straightforward hence some colleges do opt voluntarily to use this route. KPMG (2010) notes:

'The degree to which the dissolving college feels 'taken over' depends on the terms negotiated with the receiving college. For example, if continued provision on its site(s) is agreed, together with local sub-branding and adequate representation on the Governing Body, the renewed financial prospects for that provision locally goes a long way to offsetting feelings of takeover, (especially if closure was the only other likely option.)'

Mergers between HEIs and FE colleges have also been of Type B with the HEI invariably being the receiving body. This has generally been a favourable development for the staff of the FE college as, to date, KPMG (2003) identifies that such mergers have been achieved without redundancies and have resulted in improved pay for the FE staff.

Mergers in both sectors have tended to be fairly generously supported by the public purse (although this is unlikely to be the case going forward). The funding bodies have traditionally provided additional resource to meet some or all of the following costs:

• Write-off of net current liabilities
• Merger harmonisation costs
• Funds to cover urgent health and safety needs
• Costs of the merger process itself
• Occasional specific one-off needs

The UK government has undertaken research evaluating the impact of FE mergers (DfES (Department for Education and Skills) 2003, Payne 2008) and subsequent policy, as reflected in 'Further Education Colleges - Models for Success' (DIUS 2008a), shifted towards viewing merger as more of a last resort when all other collaboration options had been explored. Payne (2008) states,

'... in reality providers may act cooperatively, collaboratively, in partnership, or as a federation without formally merging. It is possible that some organisational form in between independent non-coordination and formal merger could reap some of the benefits of size without incurring the full costs of reduced competition. These organisational structures should be fully investigated and evaluated.'

The governments of Northern Ireland, Wales and, increasingly, Scotland to however still appear to favour a landscape with a smaller number of larger providers (this applies to both FE and HE in the case of Wales and Scotland) despite the lack of clear evidence that larger institutions are more effective or that mergers do indeed achieve the desired benefits (more on this in the section on Right-sizing).

Northern Ireland

The FE sector in Northern Ireland moved from 16 colleges to 6 regional colleges in 2007.

Wales

The Webb review, for the (then) Welsh Assembly Government in 2007 recommended that the FE sector in Wales should be reconfigured so that within two years no single institution had a turnover of less than £15 million and within five years each recognised region had only one FEI or consortium. In 2010 the Higher Education Funding Council for Wales set out its vision for the future shape of the HE sector (HEFCW 2010) stating that there should be no more than 2 HEIs in each of the three Welsh regions and that one in each region should be research intensive (NB A 2009 report by the Wales Audit Office gives some interesting background as to why a number of previously proposed mergers in the sector have not gone ahead).

In 2011 one of the most ambitious proposals yet for a strategic merger was put forward: the proposal was that the University of Wales Trinity St David (itself a merged institution) and Swansea Metropolitan University should join with a range of FE colleges (Coleg Sir Gâr, Pembrokeshire College & Coleg Ceredigion) to create a regional education structure described as a 'Dual Sector University'.

Scotland

In Scotland, the Scottish Funding Council appears to have surprised Dundee and Abertay Universities in 2011 by asking them to enter into urgent and unexpected discussions about a merger.

'There appear to be few real financial benefits to merger. They involve substantial costs and any benefits gained emerge only in the longer-term, if at all.'

DfES 2003

'We are not seeking a reduction in the number of FE corporations in the sector. We do not believe that there is any well founded evidence in support of large colleges generally. Indeed, we are concerned that, in some cases, mergers may actually be detrimental to the interests of learners, employers and communities ...'

Further Education Colleges - Models for Success, DIUS 2008

'The minimal cost FE merger is no more.'

KPMG 2010

'Evidence from other sectors (higher education and business sectors) identifies lessons for colleges to learn from. This evidence suggests that substantial cost savings from mergers in any sector are difficult to achieve.'

Payne 2008