EMH Insights

Mergers in New Spaces?

EMH has been exploring the possibility of mergers in the non-profit space, and others are thinking along the same lines.  Check out this article about charter school mergers.

Will We See More Charter School Mergers?

I was at Stanford today, where I had a chance to speak to business and education school students.

I also had a chance to meet with some good folks who work in and about the university.

One such conversation led to the issue of mergers.

In many industries, both larger firms and private equity companies buy up smaller companies that have profit potential but are plagued by poor management, inefficiencies, etc.

Replace “profit” with “student achievement” and you can imagine that similar opportunities exist in the charter sector.

I think we will see more mergers in the future, but that they will probably arise in certain circumstances; specifically: the will arise when the organizational cost to merge is less than the organizational cost to create.

These instances might include the following:

1. Saturated Markets

In saturated charter markets (where charter enrollment capacity significantly exceeds actual student enrollment), mergers can reduce enrollment risks for the takeover entity. It might be easier to take a slightly under enrolled school and grow it to capacity than to start a school and newly enroll 100% of students.

2. Facility Constrained Environments

Facilities are one of the greatest barriers to charter growth. In these environments, mergers would basically be a form of facilities acquisition.

3. Human Capital Constrained Environments

In human capital constrained environments, the quality of centralized systems become a greater driver of student achievement. A mature CMO with strong centralized systems might therefore feel more confident in its ability to increase student achievement via a merger.

4. Rigorous Authorizors

In rigorous authorizing regimes, charter school boards that faced certain revocation might become more active in seeking out merger opportunities, so as to avoid outright closure. It is likely that this increase in demand for mergers will lead to increases in mergers actually occurring.

Lastly, if done well, mergers would increase student achievement and decrease the disruption caused by closure, both of which would be great for kids