2U to acquire edX for $800M

Dive Brief:

• 2U, a company that helps colleges launch and run online programs, announced Tuesday it agreed with MOOC provider edX to acquire its assets for $800 million in cash.
• The online program management company will obtain edX’s brand, website, and marketplace, it said in the announcement. It will operate the nonprofit MOOC provider as a public benefit entity.
• The deal is expected to close within 120 days. It is the latest acquisition 2U has made in recent years to grow its alternative credential business, which includes short-term courses and boot camps.
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Dive Insight:

EdX will add over 3,000 online programs — including free courses, graduate degrees, and professional certificates — to 2U’s offerings. According to the announcement, they will serve more than 185 nonprofit colleges.

2U, founded in 2008, made its name by helping top-ranked colleges create online programs. But the company has made moves in recent years to offer students a wider range of credentials, including boot camps and short-term courses.

Acquiring edX makes short courses a much more meaningful part of 2U’s business, said Trace Urdan, managing director at Tyton Partners, an investment banking and consulting firm. “2U already has a short course offering,” he said. “This makes it much larger, much more global than before.”

EdX’s strong brand and website traffic could also make it easier for 2U to recruit students into its programs, company officials said. And 2U could benefit from knowing edX students’ interests, Urdan said. “Your ability to target marketing for degree program upgrades to those people is enormous,” he said. 2U’s highest annual cost is marketing and sales, nearing $400 million in 202n. Company officials predict the acquisition will save 2U between $40 million to $60 million in marketing costs within the next two years.

EdX will gain resources from 2U that will help it provide more services to its partner colleges, Anant Agarwal, the nonprofit’s CEO, said during a call Tuesday with reporters. “2U is one of the world’s best instruction design and education services organizations, so our partners can benefit from that.”

Agarwal founded edX in 2012 with the help of his colleagues at Harvard University and the Massachusetts Institute of Technology to bring online courses to the masses. But the nonprofit has struggled to find a sustainable business model, posting annual losses most years since its creation.

In the 2020 fiscal year, for instance, edX earned nearly $85 million in revenue but had $102 million in expenses, according to tax documents.

Alan Garber, the co-chair of edX’s board and provost at Harvard, told reporters the nonprofit explored several “strategic alternatives” before agreeing to the acquisition, which he said was better than remaining independent.

EdX officials may view the acquisition as a pathway to sustainability, especially while enthusiasm for online education runs high. “2U is known (to be) disciplined, and they develop a strategy,” said Phil Hill, partner with ed tech consulting firm MindWires.

Agarwal said 2U would place all of edX’s workers in similar positions. He will determine his next role in the coming days — whether through 2U, edX, or a nonprofit.

The acquisition may run into some roadblocks, observers said. For one, colleges that partnered with edX, because it is a nonprofit, may terminate those relationships due to the deal. And it could not easy to integrate the 2U and edX software.

The deal is poised to make waves in the online program management and MOOC sectors. With 2U’s backing, edX could now pose a greater threat to Coursera, a popular MOOC platform. And some OPM companies may find it harder to compete with 2U because of its new college partners.

“Their coverage is daunting at this point,” Urdan said. “It becomes that much harder for a smaller player to survive.”