Lanham’s 2U Inc. has inked an $800 million deal to buy nearly all of the assets of edX Inc., a New England nonprofit organization birthed in 2012 to offer online college courses to anyone around the world for free.
As part of the deal, 2U is buying edX’s brand name, website and platform, which the Cambridge, Massachusetts, entity built with open-source software and now uses to offer more than 3,000 courses to 35 million users worldwide with academic institutions that include founding partners Massachusetts Institute of Technology and Harvard University, as well as the University of California-Berkeley and University System of Maryland.
2U will pay for the acquisition, expected to close in the next four months, with cash on hand and a new $475 million term loan that the local company just secured Monday. That loan is set to mature Dec. 28, 2024. Separately, 2U terminated another $50 million credit agreement signed in June 2020 with several lenders in which Morgan Stanley Senior Funding Inc. served as the administrative and collateral agent. As of March 31, 2U held $486.8 million in cash and equivalents, aided in part by $319 million in proceeds from a private placement of company notes in April 2020.
Adding edX to its fold will take the reach of the combined company, led by CEO Chip Paucek, to more than 50 million users, 230 university and corporate partners and 3,500 digital programs after a year that accentuated online learning more than ever.
“We believe today’s transaction enhances 2U’s momentum, as our business continues to perform well and our second-quarter results remain on track with our expectations,” 2U Chief Financial Officer Paul Lalljie said in a statement. “To facilitate the transaction, we closed on a $475 million senior secured term loan with attractive terms, including the ability to repay the debt at par in the event the transaction does not close.”
In its fiscal year that ended June 30, 2020, edX reported $84.7 million in revenue and a $17.4 million operating loss. 2U, which said it expects the purchase to add to its earnings in fiscal 2023, outlined plans to scale the edX model while still saving on 10% to 15% in marketing costs.
2U, for its end, reported a bountiful 35% jump in annual revenue, from $574.7 million in 2019 to $774.5 million in 2020, as the world leaned into online learning during the Covid pandemic. Its net losses for the year remained relatively static, and heavy, at about $216.5 million, however. For 2021, the company expects another significant revenue bump, to a range of $925 million to $955 million. That projection is already bolstered by $232.5 million in first-quarter revenue, a 32% hike from the same quarter of 2020. As for losses, 2U projects it will shave those down to between $165 million and $175 million for 2021.
As part of its agreement, 2U said it would operate its edX offerings — for both business and academic partners — as a public benefit entity not solely reliant upon financial shareholder interests. The company said it would continue to offer the ability to audit all courses for free, keep standing agreements with partner colleges as is and contribute to the open source development behind edX's platform, among other things.
EdX leaders said this pairing could help further stretch its own mission. In its 2021 report, edX founder and CEO Anant Agarwal, a former MIT professor, said the nonprofit has issued 1.6 million total certificates, as well as full degrees, and has been tapped in 196 countries, including France, Israel, Jordan, China, Saudi Arabia and Russia. Last year, edX introduced what it dubbed as a MicroBachelors and MicroMasters for those who can’t afford full degrees, though its future plans entailed stacking and pairing different courses and degree programs, sometimes from different institutions, tailored more to a student’s needs.
This is 2U's first major acquisition since its buyout of Trilogy Education Services Inc. for $750 million in 2019, which followed the buy of GetSmarter for $123 million in 2017.
The local company's stock closed Tuesday at $42.08, up 4.2%.
