Ricardo Azziz: The M&A Economics of Higher Education- SPH Consulting Group (August 2025)

Welcome to another podcast from the College Viability family of podcasts. Hi, everybody. It's Gary Stocker from College Viability. This show is part of a series from the SPH Consulting Group that was formed by my guest, Dr. Ricardo Aziz. Today's topic is college economics, and it's not about the challenging economics course you may have taken early in your college career. We're going to focus on the current economics of higher education. And I have shared often that this industry is in its consolidation phase. Currently, there are many colleges closing, and in the coming months and years, there will be many, many, many more colleges merge to gain efficiencies of both academic and non-academic operations. Ricardo Aziz, thanks for joining the podcast.

My pleasure, Gary. Thank you for having me.

So SPH Consulting Group, why did you create it? What colleges should be interested in a conversation about mergers and acquisitions?

So we, we created this organization about 3 years ago. And one of the distinctive things that I wanted to make sure that when we created the group is that it was a group of individuals who'd actually done this. And let me just explain what I mean by this, right? Some 12, 15 years ago, I was part of a merger. I was actually hired to create a merger of various clinical units to create a health system for Georgia. And that was as president of the then Medical College of Georgia and subsequently the Georgia Health Sciences University. And after that, we then went on to merge Georgia Health Sciences University with another nearby a 4-year liberal arts institution, Augusta State University, then to form what is today called Augusta University. And what I found during that period of time, and again, we were the more complex, complicated and complex merger that the University System of Georgia had undertaken, was that nobody knew anything. I mean, literally nobody knew anything. We had some consultants that had never done it, never seen it, had no clue how to do that. We didn't know what was going on. The accreditors didn't know anything. The system did not know anything. And so after having completed that, actually, and finishing my tenure as president of this new university, I went on to then begin to study this. I spent a year at the Pullios Center for Higher Education at the University of Southern California and then wrote a book which you're familiar with called Strategic Mergers in Higher Education. And that was meant to distill all of the lessons that I and my colleagues, my co-authors, all of whom had led mergers and also the many hundreds that we had actually reviewed, you know, distilled those lessons into a tangible sort of manual, if you would, about how to undertake these. And ever since then, we've been expanding that. We've been doing other studies we published with TIA Institute. But what became obvious to me as I was doing these things and I was getting called to offer advice and guidance is that simply there was nobody out there that actually could do these things. In other words, there was lots of consulting companies. Of course, you can throw throw a rock in a pond and you're going to hit a consultant, right? But, but the, but the reality is that very few of them had actually done it. And until you do it, until you've actually lived through this, you just do not understand the nuances, the details. Anyway, that's why we formed SBH Consulting Group. And thank you for the question.

When we look at higher education in 2025, it is clear to almost everybody that there are too many colleges and too many college seats. Out there. How, in your perspective, you've been around for a long time, how did we get to this point?

Well, we got to this point a lot longer than my lifespan, okay? And so, so I think it's important to understand history, the history of higher education in the United States. And we often form and focus on the history of higher education talking about, for example, research institutions, which have been an incredible machine moving our nation forward as the premier scientific institution. But beyond that, actually, there is a much greater layer of institutions that provide education to many, many individuals. So if you look back at the late 1700s, early 1800s, you will find that we believed and the nation believed that higher education was a path to success, not for everybody, but for many, many people. And so we wanted higher education to be democratic. We wanted to be democratized and we wanted it actually to reflect the needs of a growing nation. And so what happened is during that period of time, many, many institutions were founded, right? They were founded by churches and other faith-based groups. They were founded by local philanthropists. They were founded by local societies. They were founded by the town's governance and so on and so forth. So in other words, every town, every community had its own college. And so we wanted that because we wanted those local citizens to have local access to higher education. We believed in higher education, and I hope that the country still believes in higher education for many individuals. But what happened with that is that some of them grew to be huge, right? You know, take some of the Ivies, right, who grew significantly as private institutions. But many, many, many, many institutions remain small. They remain small because they chose to do that, or remain small because they obviously had a limited number of students perhaps to do that. And then, of course, you then had the publics that were developed, right, the land-grant institutions, the public systems that were developed later on in the late 1800s, right, from the Morrill Act and so on. And those actually then became competitors for some of the students in those smaller communities, right? They grew large in general. And so now what you have is a math, right, it's an issue of lots of little colleges that were built as we democratized higher education in this nation. They served an incredible purpose to provide local higher education to their citizens in the area, and now competing with large publics as they grow, and more importantly, competing for a population that is simply getting smaller. Okay, and I think that's important to remember. I mean, I think I always tell people that in any kind of business sector, including higher education, because we may not be a business per se for profit, but we certainly are have business principles that need to be run, right? That need to be paid attention to clearly in a sector that has excess capacity. And we estimate that there are about 5 million excess undergraduate slots across the country, not taking geography into account, of course. Secondly, where there is decrease in demand, and in our case, there's less population of individuals and they're is a general softening of demand for lots of other social, cultural, political reasons. And the third thing is that we have increasing costs, right, inflation and others. So all of those three factors, right, excess capacity, decrease in demand, and increasing costs will lead inevitably to consolidation of any sector, including higher education.

And you had mentioned capacity. And I know from conversations outside the podcast, Ricardo, that you are in the middle you and your team in the middle of a research project to determine the current excess seating capacity of the entire higher education market. Talk a little bit about that project.

Yeah, so that project involves— is supported in part by the TIA Institute. It has a number of experts involved, including yourself, of course. And what we're looking at is trying to understand what the degree of excess capacity is here. Now, EY Parthenon did an estimation about, you know, 5, 7 years ago that there was about 5 million excess slots. We're gonna refine, update that calculation, but also begin to understand how that applies to undergraduate versus graduate and how that applies to regional areas, right? We're gonna look at the various areas of the nation Because again, excess capacity may be true in the Northeast, but maybe not true in the Southwest or the Southeast and so on and so forth. So we're going to look at that as part of that. And also we are completing a survey of potential students. In other words, students that are of the age to go to college or even older who might want to go to college. And we're trying to ascertain, you know, What does size matter to them, right? What factors matter to them in the schools that they seek? Because what we notice is that of all the sizes of schools over the last 10 to 12 years that have grown, the only sector that has grown are schools that are very large, greater than 30,000 students. Everybody else as an average has decreased enrollment.

I'm going to talk about something that I have commented on many times in the many media outlets that I talk with. And I share regularly, I want you to comment on this, that higher education is in a consolidation era, both in the form of closures today and mergers in the coming months and years. Am I correct on that in your estimation?

Well, you know, it's been predicted, Christensen and colleagues predicted a number of years ago that there would be a significant amount of closures across the United States in higher education because they saw what we're seeing today, right? They saw that actually there was, you know, tremendous excess capacity and of course a declining population. But, but so the answer is yes, I think those three forces that we talked about, excess capacity, declining demand, and increasing costs are going to force consolidation. Now, when we talk about consolidation, there are two ways that it can go. A school may say we've reached the end of our useful life. And it's time to close. And you're going to do that in a planful manner, right? In a manner that actually honors the heritage, honors the institution, may preserve some of the mission and some of that history, may find ways to do that. And clearly, most importantly, you take care of your students, right? We're in the business here for students and students should come first, right? That's what we'd like to see. We unfortunately see way too many schools just closing abruptly because for some reason or another, no Nobody knew that things were as bad as they seemed. The second consolidation, the second mode of consolidation is for mergers to occur, right? So schools will merge, come together. Sometimes smaller schools will merge with a larger school to sort of help preserve their mission and service their students and their communities. Others, sometimes you have schools that merge to create a totally new entity, right? What we call generally consolidation. So there's lots of that. Today we still see about 2 to 3 closures for every merger. Okay. And that's unfortunate because we'd like to see more mergers and less closures. Having said that, and I really need to be very clear, mergers, closures themselves are not a negative thing. Okay. Closures, if they're done planfully and are able to provide value and to really close a chapter in a community, in a school, and so on and so forth, and so forth. The downside of a closure is that that community may lose its only access to higher education, right, other than perhaps online and so on. So that's why we highly recommend mergers rather than closures from that point of view.

And I think I have my numbers right, but you have two books on mergers in higher education, right? The second one is coming out soon. Do I have those numbers right?

That is correct. Yeah, I mean, we have obviously some publications with TIA Institute monographs that we have published with them, But we have two books. The second book is— the first book was called Strategic Mergers in Higher Education and has done very well. And then the second book is Leading Existential Change in Higher Education: Mergers, Consolidations, and Major Restructuring. So those two books really help us inform clients, potential clients, the community, the higher ed community about what it takes to actually think about a merger, what it takes to think about a closure, and how to begin to plan it And also to understand that of all the values and all of the resources that are needed for a successful merger or consolidation, leadership is simply the number one factor, right? Not just leadership of the executive teams, which is important, but also leadership of the boards. So it's really important to remember that without that kind of expertise, without the board's commitment and dedication, without executive leadership that understands how to do this and how to bring in experts to help them do this, the initiative will likely fail.

I've heard you, Dr. Zees, I've heard you talk about colleges waiting too long to look at merger options. What do you mean by that? What are the symptoms that colleges should be looking at so that they don't wait too long, so they end up in a situation where they don't bring enough value to any merger partner?

Yeah, this is something that we're seeing time and time again. You know, we speak with a number of schools who call us for advice and so on and so forth, and, you know, they really waited till they had no other option because for some reason, and I understand it at one level, I do understand you've been an independent institution with your own heritage, your own alumni, your own basketball teams, your own mascots, and now you may not be that case, but But really waiting too long does not do any service to any of the constituents and the stakeholders that we should, including and foremost the students, right? And followed very quickly by the faculty. So, so the issue is we have to understand that in order to begin to look for merger partners, we need to begin to explore it early. And remember, exploration doesn't mean you have to merge, but you should—boards and executive teams should begin to look at mergers as a tactic that is not of last resort, but as a tactic that actually will be mandated by the marketplace, mandated by the economic realities of what we're facing sometime in the future. And we might as well start early. Start early because we might find that ideal partner. Start early because we don't have to rush and make a deal that we didn't want to do. Start early because we have better negotiating positions. Start early because in the end we may decide that's not for us. But that's okay. At least we studied it well and understood what's needed. Lots of boards, lots of executive teams absolutely refuse to do that. They wait to the last minute, then they're scrambling trying to find a partner. They're not good candidates themselves. They don't have any assets, they don't have a name, etc., etc. And then nobody wants them and they close.

And you mentioned faculty a moment ago. Let's kind of redirect the conversation from a faculty perspective. You've been a college president. You led some mergers and acquisitions. What signs in 2025 should college faculty look for to determine if their organization is in financial distress?

You know, there is a lot of obviously available numbers, right? I mean, I think that your, your, your College Viability app does a great job of highlighting those numbers. And so there's not a lot of secret here about it. But what I do find is that very often leaders, both internal, external, do not look at trends. You know, they say, well, our enrollment is down 2% this year and, you know, it's down 1% last year. And but we're okay. We're, you know, we're keeping steady and so on and so forth. These are the kind of things that I hear when I go to boards, right? They look one year to the next. The variance and so on. But treading water is not enough because if you look at that school, right, you lost 2% and the year before 1%. But if you look at that school over the last 10 years, you've actually lost 25% of your students, right? And that's significant. But I think it's so— so it's very important not just to pick the right, you know, financial predictor, whether it's debt ratio or revenue or, you know, or overall tuition or any of these kind— there's a whole number of of key metrics that we can look at financially and from enrollment point of view. But you need to look at trends, what really has happened over the last 10, 12 years, and then be able to face the data in a truthful way, not to make excuses, not to say, well, that was because of COVID Oh, well, that was because of the recession. Oh, no, no, no. We got to understand that the reality, whatever the reason was externally, The reality is you have lost 25%, 30%, 35% of your students.

Dr. Zees, I'm going to give you a magic wand and I want you to make me a college president for a day and give me guidance as that college president for a day. Give me guidance on what my first step should be if I need to introduce the possibility of a merger with my board and with my organization.

Well, I thought you were gonna give me a magic wand and I was going to be younger, taller, and slimmer, but obviously that did not work. But let's talk about this for that day. So, the first thing I think is important for any university president is really to understand the numbers and to really do this in an unabashed, unapologetic, and an unfearful, right, not fearful manner. Okay. I think it's really important and too many presidents really don't. Understand the finances very well. They defer to the CFO, and that's a problem. But let's assume that this president understands the finances and understands, gee whiz, this is going to get worse and worse in the future. It's not going to get any better. We're still in okay financial position, so we're still okay in an ability to offer some real value, but it's going to get worse. So how do you start conversations about mergers? My advice is, and it's a simple one, is start one person at a time. Okay, this is not a group meeting. This is not a meeting where you get together with the board and you just announce that this is a problem from the board and so on. You really should— my advice is, having done these, having negotiated these myself, is you go one person at a time. So, so let's say it's the president who realizes we need to explore or mergers, even if we don't do them, we need to actually have a genuine evaluation of the potential that is out there. Your best bet is to begin to have a— begin to educate and discuss this in a one-on-one manner in a personal way with individuals that will help you create your positive, if you would, your team. That may be the board chair. That could be the board vice chair and so on. I don't generally advise you to advise presidents to meet with more than one person at a time because the group dynamics immediately fall into place, right? This is such a sensitive issue that people tend to sort of try to look around and see what is the other guy going to say? What's the other gal going to say? And that's not going to be helpful here. So one at a time, start getting your team. I always tell people that it's very clear that change occurs in a 20-60-20 manner. Means 20% of the people you talk to really like the idea and jump on board to support you. 20% of the people hate it and will just, you know, wait you out to the, you know, till death. And then 60% of the people will sort of wait in the middle and see what happens and who's going to win. In a board, you can't afford too many of the 20% of people that will oppose you till death. So that's a real problem when you're dealing with a board, but you want them to understand it, but do it strategically, one person at a time. And you need to know your board so you know who to talk to first.

And let's make this the last question, Dr. Aziz, for students and their families. Let's, let's talk about students and their families and their college decision process. As they listen to this podcast or parts of this podcast, what guidance would you give them as they're starting to create that college list to start college this time next year?

Well, I think, you know, higher education is all about the students, and students and their families are footing an enormous bill, you know, and they are— I always say student debt is the second or third most, most depressing personal debt in this country. So one of the things that they need to actually understand is things that they already do, which is, okay, who's going to offer me more, more more grants and scholarships and who's going to give me a greater discount and so on. But they need to remember that discounts come with an impact to the school. So sometimes schools that give a lot of discount, meaning they reduce the stated price of the tuition and fees, that's problematic as well, right? That's probably— that could be problematic. It's one of the economic markers that we tend to follow, right? What is your discount rate? How much are you having to reduce your price to get the students. And so that's, that's something they need to be aware of. The second is really to understand the financial health of those schools, right? I mean, your app does a nice job of showing some of that as well. And so having families be able to understand, okay, is this college viable, is it not? Because the last thing they want to do is go to school and find that it closes shortly thereafter, or, or it closes even after they graduate, and then it becomes hard for them you know, have a degree that is of value, right? So it's important for families to understand that viability, economic viability, is a reality of any institution, right? You don't want to necessarily buy cars of places that are going to go out of business because then you can't find parts, but it's also the same for higher education.

Dr. Ricardo Aziz from the SPH Consulting Group has been my guest today, and I guess the wrap-up message, Dr. Aziz, is for those listening to this, and Riccardo, you made this point early on in the podcast, you've been through this. And you can tell just by listening to the guidance you provided answering these 8 or 9 questions that that perspective is one that is not available enough from folks engaging any kind of merger conversations. So as you listen to this podcast, keep in mind, if you're talking to folks about a merger, if you're talking to folks about an acquisition, make sure you bring someone on board to at least chat with that's been through the process. So Ricardo, thanks for making time for joining me. I'm always grateful for your time.

Thank you for having me. Appreciate it.