Overseas Ed-Tech company wants to buy 2U. What could this mean for colleges?
What happens to online college programs if the company running them changes hands? It’s a question on the minds of higher education leaders as a foreign educational technology company tries to buy 2U.
Byju’s, an India-based ed-tech giant, has put over $1 billion on the table to acquire online program manager, Bloomberg first reported late last month. 2U is one of the largest online program managers, or OPMs, in the United States, known for developing online degree programs and teaming up with more than 130 American colleges, including major institutions such as the Arizona State, New York and Syracuse. The universities. It is also the parent company of online course provider edX.
This particular scenario â where an international supplier is looking to buy an American company that is not in direct competition with â is highly unusual in the industry, ed-tech experts said The Chronicle. And it’s already raising questions among colleges about what that might mean for the reach and quality of 2U’s services.
Regarding e-learning programs, 2U is involved in the whole life cycle, organizing marketing and faculty trainings, operating e-learning platform, lending 24h IT support / 24/7 and hosting placement programs for post-graduation jobs and internships. It is also known for prioritizing small class sizes, with an average of 16 students in a class for its degree programs.
According to these experts, the concern among colleges is that if Byju’s wanted to reduce costs or focus more on short-term products at the course level, it could reduce this “high-touch” model that many institutions have come to expect. exchange. for paying $2U million through tuition-sharing agreements. We are also wary of the temporary disruptions that can occur whenever a company undergoes a reorganization.
University leaders are concerned that Byju’s intention is “to use the foothold and cash flow to achieve another goal” and that 2U customers will not be a priority, says Clay Shirky , vice provost for educational technology at New York University, who works with 2U. . “That’s what worries us.”
A changing market
While the bidder is surprising, industry experts have noted that poaching 2U is not, given the fall in the market value of the listed company. They see this offer, in fact, as indicative of the changing nature of the ed-tech market.
“We have a situation in which publicly traded companies and start-ups are cheaper than they normally would be,” wrote longtime IT consultant Michael Feldstein. blogger, in an email. “ED tech companies or private equity firms with lots of money are looking for good deals.”
Along with this instability comes a greater likelihood that colleges will see the ed-tech companies they work with change hands for the duration of a contract â which, at least for some 2U institutions, can last. 15 years or older.
“Your favorite EdTech vendor is much more likely to acquire (or be acquired) in the next few years than it has been” in years past, another longtime industry watcher, Phil Hill , written in a recent blog post on this development.
To be sure, there is no agreement yet. There have been skeletons ‘coming out of Byju’s closet’ recently, inviting scrutiny of his fiscal health, according to the Indian outlet. Morning background reported this month. Of the $800 million Byju said he raised this year, $400 million came from investments by his own chief executive. An additional $250 million has yet to materialize, according to Morning background. Last month, the company also asked for an extension by making payments for a prior acquisition.
However, 2U is still in a vulnerable position. The publicly traded company’s share price as of mid-July had fallen more than 80% since the start of 2021. Its recent market value was $717 million, a fraction of its high of 5.15 billion in June 2018.
OPM chief executive Chip Paucek “reassured us of 2U’s commitment” to working closely with its partner institutions, Shirky said. But Paucek also acknowledged that public companies are still for sale, Shirky added. “Chip has an obligation as CEO to review the offer and present it to its board of directors.”
A 2U spokeswoman declined to answer questions about a potential acquisition by Byju’s, noting that the company’s policy is “not to comment on market speculation.”
A matter of commitment
An international company seeking to enter the education market in the United States is not unheard of. About 30 American colleges, for example, have active contracts with companies based in India only, according to a the Chronicle analyse of a database from the United States Department of Education.
Yet experts ask: why 2U?
Byju has over 100 million users on its learning app, but its services are aimed at elementary and secondary students and focus more on short-term learning programs and test preparation than the curricula that are the bread and butter of 2U. Just weeks before his offer to 2U hit the headlines, Byju’s would have ogled Cheggan American company known for renting digital and physical textbooks, among other student services.
There is definitely a financial incentive. The economic period in India reported that Byju intends to go public next year and may want to strengthen its portfolio to attract investors in the United States.
But Byju’s emphasis on direct-to-consumer, course-level content has experts like Hill wondering if the main interest is not so much for 2U as for edX, which offers university-level courses in various disciplines and holds the key to a reported 42 million users. And if so: is 2U stripped for parts or downsized?
“EdX makes more sense to me” as a main draw, given its business model similarities to Byju’s and the fact that it’s less regulated, Hill said. “I have a question about [Byjuâs] commitmentâ to 2Uâs current offerings, âparticularly on the degree side.â
Byju’s did not return requests for comment on how it plans to operate 2U and edX in the event of an acquisition.
NYU’s Shirky added that — typically — acquisitions can be a headache for clients (in this case, colleges). If the new owner goes on a hiring spree, there are onboarding and HR distractions. If there are staff reductions, especially in places like call centers, it may take longer to get help. Existing employees may be reassigned to new roles to better align with the new owner’s agenda, undermining the original business model.
“Hardly anyone who acquires a company acquires it because they’re thinking, ‘Man, this CEO really has the right strategy,'” Shirky said. And even if the strategy doesn’t change, if the quality suffers during the transition, “It’s our [the collegeâs] reputation at stake with the programs we offer.
With so much still unknown, experts and faculty members were reluctant to speculate on whether an acquisition would completely alienate some colleges from 2U and edX. Faculty members at several colleges who work with 2U or edX declined or did not respond to requests for comment from The Chronicle.
How easily disenchanted colleges could modify or terminate their agreements with a company like 2U depends on each case, said education attorney Jeff Knight. Many of them have contracts with the OPM that last for more than a decade. Simmons University, Boston, is blocked until 2039; the University of California, Berkeley is about halfway through a 15-year contract with 2U, which is due to expire in mid-2029.
The UC-Berkeley contract, previously obtained by the Century Foundation, appears to allow the institution to terminate the arrangement if Byju were to tangibly reduce 2U services that deviate from what the college signed on to, Knight said. It includes provisions that allow for termination in the event of a “significant reduction in financial or other resources devoted by 2U (or its successor) to 2U’s services”, or a reduction in “previously agreed upon operating plans”.
Contracts are “an art, not a science”, he said. And “language becomes more important the longer the relationship is designed to last”.