Mulling over mergers


By S. INDRAMALAR

MERGERS in education are fast becoming a global phenomenon, an inevitable response to the competitiveness of the education industry. In Britain, talk of university mergers have been bandied around for years, including unions between top institutions like London Guildhall and the University of North London (now called London Metropolitan); Glasgow University and Jordanhill College; and Edinburgh University and Moray House.  

On Malaysian shores, the proposal for such a move was mooted four years ago by then education minister Tan Sri Musa Mohamad. He wanted private colleges mergers to “maximise resources” in view of stiffer competition from regional markets and foreign education institutions. Musa envisioned reducing the number of private colleges from the 500-odd to less than 100. 

However, though mergers have been taking place among banks, financial institutions and corporations – among them Bumiputra-Commerce Bank, Glaxo-SmithKline-Beecham, PriceWaterhouse-Coopers – the practice has not caught on with local private colleges.  

OOI: 'There is actually a heavier investment to be made when merging.'

The risks and costs involved in a merger, say college bigwigs, are not worth the effort. 

“There is actually a heavier investment to be made when merging. The bigger and stronger entity will have to build up the smaller one and raise it to the same level of achievement.  

“Sometimes, it may be more feasible for the bigger college to just expand programmes and physical campus rather than merge,” says Taylor’s College’s chief operating officer Ooi Chee Kok 

Sensing the resistance from private colleges, the Government in its Budget 2005 included incentives for private higher learning institutions that merge.  

To expedite mergers, the Budget proposed the exemption of stamp duty and real property tax gains for colleges that merge before 2006. Though eager to see consolidation in the industry, colleges are not sure if this incentive is enough to propel them to merge. 

Says Ooi: “Basically we are supportive of the move if it will help the industry consolidate, emerge stronger and have the competitive edge, especially with competition in the region from Singapore, Thailand and others coming up with similar models to what we have here.  

“We have to be a step ahead and if this move helps us get there, we're all for it.'' 

Speculation 

Due to the lack of details, college operators can only speculate on the proposed incentives. If College ABC buys over College XYZ, is that considered a merger? If College ABC merges with College XYZ, can both retain their individual names? 

Says Malaysian Association of Private Colleges and Universities (Mapcu) secretary-general Dr Lee Fah Onn, “So far, no details have been made known to us. What we know is what the Prime Minister announced in Parliament. But we don’t know for sure what the ministry defines as a merger. 

DR LEE: The industry is waiting for the ministry's definition of college mergers.

“For instance, if College B absorbs College A, does College B automatically earn the right to offer the programmes that were being offered by College A or does the new entity have to re-apply for approval and accreditation. These are all legal issues that have to be addressed.” 

Says Ooi who shares his views: “The term ‘merger’ has to be further defined.  

“In my opinion, merger is when two or more institutions come together as one. In this case, acquisition can also be considered a merger. The authorities have to define what they mean so everyone is clear on the definition and who will benefit.”  

The past half-decade has seen several college acquisitions, one of the most recent being the acquisition of Metropolitan College by Inti Universal Holdings Berhad. Others include SEG International Bhd’s (SEGi) acquisition of the Prime group of colleges, Summit International College, MSC International College as well as the Institute of Business and Management Studies in early 2001, and one merger between Stamford College in Penang and Disted College, creating Disted-Stamford College. 

Realising the need for a set of guidelines, the higher education ministry’s private education department met representatives of Mapcu, National Association of Private Education Institutions (Napei) and the National Association of Private Bumiputra Institutions of Higher Learning as well as chief executives of major colleges to get their feedback on the Budget proposals. 

“We met the three associations and several CEOs recently to get their feedback. This was useful and we are now in the process of coming up with guidelines and definitions on college mergers and the terms and conditions for the incentives,'' said Dr Ariff Kassim, the private education department’s enforcement division director.  

“We hope to come out with the guidelines in a week or two. We are trying to get this done as fast as possible. In fact we already have a few applications from colleges who want to merge.”  

Some risks 

Mergers in education, says SEG International Bhd (SEGi) chief executive officer Datuk Clement Hii, cannot be compared to those in the banking or corporate sectors. 

“We must bear in mind that mergers in education cannot be equated to mergers in the banking or other sectors. When two colleges merge, one of the main considerations are the students involved and whether the merger will in any way affect them. Even though the merging colleges may be offering the same course, the curriculum and teaching methods will be different and a merger may cause students to lose out.” 

Apart from the ringgit and sen involved, colleges have many intangible issues to contend with when deciding whether or not to merge. 

“The two institutions may have differing cultures, philosophies and direction, making a merger difficult. Other things to consider are the student profile of both colleges as different colleges cater for different categories of students. Then of course, we have to look at the facilities, infrastructure and academic standards, among others. 

“When two or more colleges merge, the idea is for smaller colleges that are perhaps not performing optimally to benefit from a merger with a bigger, stronger partner. The onus is therefore on the bigger college to ensure the same quality and standard of courses and services is maintained, if not improved.  

“Parties must be careful not to allow one entity to drag the other down,” says Ooi. 

Said another private college bigwig, “To be honest, although the incentives are a step in the right direction, the incentives in Budget 2005 are not enough to push colleges to merge. 

“At the risk of sounding too demanding, we need more incentives and merging is more of a risk, especially for the bigger entity.” 

Says SEGi CEO Datuk Clement Hii, “There have to be more incentives like tax relief for merged entities that contribute to research. The government wants IPTS to do research but many are reluctant because this calls for heavy investment. Will the ministry also consider preferential treatment for institutions that merge to obtain university college status?” 

With the right support, mergers can be beneficial, says Ooi. 

“In some academic areas where the supply is higher than the demand, a merger can be a more positive way to rectify the problem. 

“And of course with mergers, colleges can enjoy economies of scale – shared facilities, support staff, infrastructure, etc. And savings from these can be invested back into the college for improvement of services,” shares Ooi. 

While it would seem small and medium-sized colleges stand to benefit from mergers, Aliff Creative Academy’s general manager and principal Henry Wong feels this is not what the industry needs at the moment. 

“There are bigger problems that have to be addressed. There are many small and medium-sized colleges that are struggling to get their footing. I don’t think merging is the answer.  

“Private colleges actually play a large role in the education sector. By providing places for a large number of students, the government does not need to build more local universities that are heavily subsidised. In recognition of this, students in private college should be entitled to subsidies as well, not necessarily as large a subsidy but a portion.  

“There is a need for other incentives related to infrastructure and land that should be given priority instead of incentives for mergers,'' says Wong. 

Related Stories:Higher Education perks 

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