RSM Presentation April 30, 2018 Eric Norman Vice President & CFO Exploring New Models for Strategic Alliances in Higher Education October 14, 2016 1
Moody s Investor Service OUTLOOK 5 December 2017 Higher education - US 2018 outlook changed to negative as revenue growth moderates Our negative outlook indicates our expectations for the fundamental credit conditions driving the US higher education sector over the next 12-18 months.» Growth will slow for most revenue streams.» The rate of expense growth will outpace softening revenue growth.» Uncertainty at the federal level continues to contribute to potential sector volatility.» Solid financial reserves add a stabilizing element. 2
INSIDE HIGHER ED Clay Christensen, Doubling Down Despite emerging questions about applicability of his "disruption" theory, the business guru still believes half of colleges could close in a decade, driven by the spread of online learning
Choices in Resource Acquisition ØBuild it ØBuy it Ø... affiliate with it
What do we mean by dating? There is a full spectrum to consider: High 1 Independence 0 Low Consortium Relationship Shared Facilities and/or Services Joint Programming Affiliation 0 Low High 1 Integration & Savings Full Integration 1 st Date Marriage
What is the dating scene like? Girl or boy next door (close proximity) Opposites attracts (nominal program overlap) We both like (similar program orientation) Shared religious affiliation Dating above ourselves (bigger, higher ranking, better reputation) Attractive features (programs, RE, endowment) Great personality (shared culture, other current or past relationships)
Tell me why we should consider dating? It s likely that you have been bumping into them more than once and have played well together in the sandbox Understand both sets of motivations strategic, distressed, synergistic Perform an honest assessment of reputations and brand value Like any relationship both sides have to see benefits! 2 Or
Tell me why we should consider dating? Academic/Pedagogical Offer broader, shared academic programs Ø Complementary programs Create new programs and/or joint degrees Faculty Expertise Gain access to new resources (on-line, international campus, summer programs) Create feeder/pipeline from one school to other Improve/expand recruiting outreach & applicant pool Or
Tell me why we should consider dating? Non-academic, institutional factors Improve market position by affiliating with stronger brand (rankings, ratings, reviews) Competitive positioning Sustainability of mission Develop synergies and savings from combined platforms Gain access to resources like endowment, state appropriations, boards, and fundraising platforms Demographic shifts There is a strong, shared vision and understanding 9 Population change: represents the anticipated percentage change in the number of students graduating from high school from 2009-2019 Source: WICHE (via NACUBO)
Better make sure you have an open mind for dating - Starts with a stringent self-assessment Ø Often part of or catalyst for strategic planning/swot Ø Know your strengths and weakness Programmatically Financially Market position/reputation Key people - Need internal champions and level of expertise - Assess faculty, alumni, board landscape - Know and manage your constituents
Time to get in shape, look in the mirror - Fiscal Ø Trend for net tuition (enrollment growth, discount rate) Ø Reliance on earned vs unearned revenues Ø Fundraising capacity and endowment management Ø Debt capacity and liquidity needs Ø Cost structure (instructional, unions, benefits) - Physical plant Ø Suitability for programs; ability to support growth Ø Capacity Utilization Ø IT/ERP systems Ø Deferred maintenance Ø Need for new and/or expanded facilities Ø Location - Student demand trends Ø Applicants and Applications Ø Yield/Selectivity Ø Demographics Trends Ø Cost of Attendance