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Business schools may not have their shares listed on public stock exchanges but they are still businesses, even if many shelter under the wing of a university. When they merge, the language used and rationales offered are strikingly similar to those that accompany big corporate M&A announcements.

As with conventional companies, business schools have owners and leaders who may feel the school would fare better if it were bigger or its product range wider, or even that it should have a new owner. Similarly there are stakeholders whose attitudes will be crucial.

The main asset of two investment banks or advertising agencies that plan to merge will be its employees, who can walk out of the door if they do not like the new set-up. In business schools, the key asset and most precious resource is faculty.

Although there are many reasons why business schools merge, the quest for critical mass in a competitive market is paramount – just as in the corporate world.

Increased size was an important motivator in 2004 when the UK’s Manchester Business School joined forces with the Institute of Innovation Research, Umist’s Manchester School of Management and the Victoria University of Manchester’s School of Accounting and Finance.

The new MBS is roughly four times the size of its predecessor and can set itself the goal of becoming one of the world’s top 25 business schools by 2015. A merger on this scale also brings increased diversity, not only of faculty and courses but also of the student base, along with a bigger alumni network.

Similar factors were at work in the business school world’s most recent merger, between Tias Business School and Universiteit Nimbas. The deal between the two Dutch schools was announced this summer, and bears a strong formal resemblance to a corporate takeover, as Tias has bought all the shares of Nimbas from its entrepreneurial owner and founder, Joséphine Borchert-Ansinger.

Philippe Naert, the former Insead dean under whose leadership Tias has grown substantially over the past 10 years, continues in charge of the expanded institution, to be called TiasNimbas Business School. He sees three reasons for merger.

The first is the changing business, with the need to cover everything from full-time MBA programmes to tailor-made executive education, on which companies are expecting almost measurable return on investment. “The business has changed dramatically, so you need different faculty members for the different elements,” says Prof Naert.

He points out that a broader product base also enables schools to weather business cycles better. When the economy is not doing so well, he says, there tends to be an increase in enrolments for full-time MBAs – which Tias did not offer – and a decrease in most of the rest of the courses.

The second is competition. Demand for the key resource – faculty – pushes up its cost, while increasing competition requires higher spending on marketing. If customers are becoming more sensitive to value for money and pricing, too, the overall effect is to raise the minimum scale for a school needed simply to break even. “This is much higher than it was five or 10 years ago,” says Prof Naert.

The third is the change in industry structure from a pyramid to an hourglass shape as the really big schools become ever bigger, squeezing the schools in the middle segment. This phenomenon, notes Prof Naert, is not unique to business schools.

Failing a massive donation from a rich benefactor – which is less usual in Europe than the US – Prof Naert says the only solution for a middle-ranking school wishing to get into the top league is a merger or acquisition.

The demand from customers – especially global companies – for a more rounded business education combining practical and academic aspects has also been a factor in recent mergers. “Ten years ago schools could choose to be either more academic or more practitioner-oriented,” says Peter Hägglund, new chief executive of IFL (institute of management education) at Stockholm School of Economics. “Today I doubt anyone has that option. Clients need both.”

That explains the decision 18 months ago to merge IFL with SSE’s own executive education activities. Both had originated within SSE, says Dr Hägglund, but had drifted apart, with IFL taking the practitioner-oriented route and SSE’s own executive education activities focusing on academic content.

He admits implementing the merger has been very difficult from a cultural perspective. The academic and practitioner cultures are not incompatible, he says, but post-merger the two types of people were “sort of put up against each other”.

“Some stakeholders must be early adopters of the merger,” he says. “Just in the past six months we identified those, the programme directors and professors. You have to choose one or two groups you really have to focus on – we did that perhaps a year after the merger.”

In a situation where two groups of individuals with high levels of self-esteem are being merged, anxieties are inevitable. But the process normally runs more smoothly if there is little or no overlap or duplication, as is the case with the Tias-Nimbas merger.

In any case, says Prof Naert, “by bringing the schools together we will experience considerable growth, so we will need more people rather than fewer”.

One big difference between European business school mergers and their corporate counterparts is the absence in the educational sector of cross-border deals in which ownership has changed hands.

Cultural and practical considerations have stood in the way, and schools have taken their cue from perhaps the most significant and successful merger in the sector – that between IMI of Geneva and Imede of Lausanne. The two close Swiss neighbours came together in 1990 to form IMD, one of the sector’s European giants.

Cross-border mergers have not been completely off the agenda where cultures are similar and distances close. Prof Naert reveals that before this year’s deal with Nimbas there had been merger discussions with a Belgian school. Such a cross-border transaction could work, he says.

The preferred alternative for schools looking to achieve scale through cross-border deals is strategic alliances and joint ventures. The most recent such deal was a strategic alliance announced in June between Esade of Spain and France’s HEC, deepening the long-standing collaboration between the two schools.

Professor Sue Cox, dean of Lancaster University Management School in the UK, says much can be achieved by strategic alliances and joint ventures, giving changed or increased capability aligned to client/customer needs, but with greater flexibility than mergers allow.

■ Mergers in the French business school sector: France has been at the centre of the merger trend in European business schools, partly for domestic reasons but also because of factors that hold true across the continent.

Brigitte Fournier, founder and director of Noir sur Blanc, a Paris-based consultancy specialised in business education, says France has an extremely crowded business education market.

There are more than 30 “top tier” grandes écoles, but if all the small management/business schools (and other state- and non-state funded institutions offering management training) are included this figure rises into the hundreds.

In recent years, she says, there has been an increase in merger activities as schools look for critical mass on both their home market and on the international market – or even, in some cases, seek to secure their survival. “This trend will continue and become even more common,” she says.

The increasing importance of accreditation has also driven schools to gain more critical mass in terms of students, faculty and research activities, says Ms Fournier. In some cases, the Bologna accord has prompted schools to consider taking over small schools so they can offer all levels of management education – bachelor, master and doctorate.

The turn of the millennium brought a wave of business school mergers in France, as the local chambers of commerce that own or part own many of them realised the schools needed substantial assets and resources to attract the brightest – both students and faculty – and critical mass to operate internationally.

Thus, the Tours and Poitiers schools came together to form Escem School of Business and Management, while in Paris, four schools run by the Paris chamber of commerce were reduced to two as HEC merged with CPA while ESC de Paris joined with EAP.

The more recent takeover of Esidec, based in Metz, by ICN Business School, at Nancy, typified this trend. Following a two-year alliance between the two schools, Esidec’s main stakeholder, the local chamber of commerce, decided a year ago that it wanted to “externalise” the school to an institution such as ICN, explains Thomas Froehlicher, ICN’s dean.

“Many [chambers of commerce] are thinking about the costs of their business school and are hesitating about investing because generally they are the only stakeholder and have to support a large amount of the budget,” he says. While a few chambers believe it is important to have a school of international dimensions, others do not want to pursue this objective and look to share costs or even to divest their school.

Prof Froehlicher notes two advantages of the takeover for ICN beyond the simple increase in its critical mass. First, there is the content aspect – Esidec specialised in the key area of supply chain management. Secondly, the new dual location of Nancy and Metz brings ICN closer to potential customers in Luxembourg and Germany, and broadens the availability of regional support.

On the other side of the country, meanwhile, the Nantes region chamber of commerce was a big influence in the creation this year of a new group structure that will bring a communications school and a bachelor-level school under the management of Audencia Nantes. The chamber plays a governance role at all three schools.

Other schools have yet to carry out any mergers or alliances, but are discussing the issue actively as they want to expand but understand they cannot do that alone. Also they have realised that for both governance and financial reasons, the chamber of commerce cannot be the school’s only owner.

One such is Reims Management School. François Bonvalet, dean, says: “We have not yet decided what to do, but I’m sure that in the next five years, we will have to do something, because we have to increase the number of applicants.”

Questions to be considered, he says, include the size and portfolio of the other institution – is it better to merge with a similar school or one that supplements existing activities? And is it more important, as a first step, to focus domestically or abroad?

Mr Bonvalet points out some obstacles, however. One could be differing styles of governance, especially between a university-based school and a private one. A second could be opposition from alumni, he says: “It might be quite evident to say that ‘les trois Parisiennes’ – HEC, Essec and ESCP-EAP – have to merge to become more visible. Nevertheless they don’t merge because of the pressure of the alumni associations. The alumni don’t want it – they say ‘If you merge, I will lose all my value.’”

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