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Dear Vice-Chancellor or Principal

Regulatory implications of merger or acquisition involving HEFCE-funded providers

1. This letter sets out the approach we take to considering the regulatory and funding implications of a merger, acquisition or other significant structural change involving HEFCE-funded providers. No action is required in response.

2. It covers structural changes at all HEFCE-funded providers, including mergers between:

  • higher education institutions (HEIs)
  • HEIs and further education colleges (FECs)
  • HEIs and alternative providers of higher education (HE)
  • between FECs.

3. The information has particular relevance for any provider that holds degree awarding powers (DAPs), because merger (including acquisition) can have implications for DAPs and university title (UT) or university college title (UCT). Further information on these implications is set out in government guidance:

  1. DAPs: Page 12 in ‘Guidance for Higher Education Providers: Criteria and Process for applying for University Title and University College Title’.
  2. UT and UCT: Page 18 in ‘Guidance for higher education providers: criteria and process for applying for taught degree awarding powers and research degree awarding powers’.

4. In particular, when a university plans to merge with an FEC it needs to consider whether it would still be able to meet the student number criterion for UT that 55 per cent of its full-time equivalent students are studying at HE level.

HEFCE consideration of merger

5. HEIs are required to inform HEFCE of any merger or acquisition as a condition of the Memorandum of Assurance and Accountability between HEFCE and providers. For FECs this is a requirement of the funding agreement. HE providers should inform their Regional Consultant of any proposed merger as early as possible, to ensure that we can make them aware of potential implications.

6. On being notified of a merger we will write to the lead provider requesting information to allow us to understand the regulatory implications of the merger. We will also set out the regulatory responsibilities of the provider and areas that will need to be considered during the merger process. The information we request will vary depending on the type of merger and the providers involved but as a minimum will include:

  • current legal status, UKPRN and charity status of each provider
  • changes to each of these arising from the merger
  • whether HE provision will continue (for FECs)
  • an assurance that nothing in the changed status will affect the ‘new’ provider’s ability to meet the conditions of funding.

7. Once a response to that letter is received we will consider the implications and establish the status of the ‘new’ provider in respect of funding and quality assessment requirements. It may be necessary for us to follow up with further questions.

8. In cases where all providers involved in the merger are HEFCE-funded already the assumption is that funding would continue. However, we need to ensure that we are still legally empowered to fund the ‘new’ provider and, if so, to determine the provider’s position within the new HEFCE quality assessment framework.

University title/degree awarding powers

9. If the merger or other structural change involves a university, university college or other provider with DAPs (including foundation DAPs), we need to understand how the provider would be affected by the change and whether the criteria for student numbers (for UT only) and good governance (UT and UCT) continue to be met.

10. Once awarded, DAPs are ring-fenced for use only by the provider originally granted these powers and they cannot be transferred. The Department for Education (DfE, the Department with decision making responsibility following recent machinery of government changes) would want assurance that the original provider that was assessed for, and awarded DAPs, remains the same following the merger. For this purpose the term ‘provider’ refers to the cohesive and self-critical academic community that was assessed for DAPs by the Quality Assurance Agency for Higher Education and, in doing so, demonstrated firm guardianship of its standards.

11. Therefore we will request information, as appropriate, on:

  • impact of the merger on student numbers and the proportion of students studying at HE level
  • whether structure and governance will change post-merger
  • how DAPs would be operated under the new structure
  • where teaching which has been assessed for DAPs will take place
  • any changes to academic governance.

12. We will share this information with DfE for a decision on whether a full review against the published criteria is required for UT/UCT and whether it is satisfied that there are no implications for DAPs. Where a full review is required for UT/UCT purposes, providers will need to show that the criteria for student numbers (for UT only) and good governance continue to be met.

Outcome

13. We will write to confirm whether the merger affects our legal ability to fund the new provider and future arrangements for quality assessment. If applicable, we will also confirm whether DfE is satisfied that the new provider remains eligible to hold UT/UCT and/or DAPs. Further details of the areas that will be covered are set out in Annex A.

Takeover of HEFCE-funded provider by a non-HEFCE-funded provider

14. Where a provider that HEFCE does not fund (whether this is an alternative provider or a publicly funded college) takes over one or more providers that HEFCE does fund, we would make an assessment against the relevant gateway criteria if the resultant provider wanted to retain HEFCE funding.

15. If an alternative provider takes over a HEFCE-funded provider a full gateway application for designation for HEFCE funding would be required. Guidance on the designation process can be found on the HEFCE website. Decisions on designation are made by the Secretary of State, and certain requirements are set out in legislation. The DfE would therefore require any ‘new’ provider to demonstrate it met the published criteria.

16. Where a publicly funded college which is not HEFCE-funded takes over a HEFCE-funded FEC, we would undertake an assessment against adapted criteria from our direct funding gateway. The assessment would give due consideration to the previous funding status of the dissolving providers. Annex B sets out the approach to considering whether HEFCE funding should continue in these circumstances.

Yours sincerely

Susan Lapworth

Director, Regulation and Assurance

Date: 22 September 2016

Ref: Circular letter 28/2016

To: Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions

Of interest to those
responsible for:

Strategic development, Senior management, Governance, Strategy, Finance