EdTech Giant 2U Acquires GetSmarter For $103 Million
Caroline Howard Forbes Staff
Here's $100 million. Now take us global and beyond college degrees.
In a week full of surprises to the online education world, 2U announced it is acquiring GetSmarter, a South African startup that delivers short-term online certification courses to distance-learning students in partnership with many of the world's top-tier universities. The price tag for the deal is $103 million in cash plus an earn-out provision of as much as $20 million in cash. Days ago Purdue University dropped the shocker that it is buying for-profit Kaplan University for $1 to transform it into a new non-profit arm of Indiana's public Purdue system.
Sam and Rob Paddock, cofounders, GetSmarter
GetSmarter was founded in 2008 by two brothers, Sam and Rob Paddock, and was previously self-funded until last year, when it raised $5 million from Digital Growth Africa Middle East (DiGAME), a subsidiary of Zouk Capital. GetSmarter claims to have served more than 50,000 students globally with a course completion rate averaging near 90%. Headquartered in Cape Town, the company says it saw approximately $17 million in revenue in 2016 and has some 400 employees, including performance coaches, technologists and video producers, as well as academic tutors that operate remotely around the world.
This is the first acquisition for 2U, a publicly-traded company also founded in 2008. 2U was an early-in to building online degree programs, mostly master's, for top universities including University of North Carolina-Chapel Hill, University of Southern California and Syracuse University. Fast-forward nine years, 2U is undoubtedly a leader in the digital degree space in the U.S. It now partners with 18 universities and saw $205.9 million in revenue in 2016, an increase of 37% from 150.2 million in 2015.
This move suggests that they are seeking to rocket into the global marketplace and non-degrees such as certifications and digital portfolios. U.S. higher education represents a $550 million marketplace while global higher education is a $1.9 trillion industry.
"This [acquisition] was opportunistic, a chance to go after a market that we don't play in today," says Christopher "Chip" Paucek, cofounder and CEO of 2U. "Short-course certificates are a big part of the ecosystem." These non-degree courses, typically 10-12 weeks, address an audience of mostly working adults trying to advance their careers and seeking certifications of completion to show off on their resumes and LinkedIn pages.
Reflecting the increasing cred of brand-name college certificates to employers, Paucek points to GetSmarter's extensive ties to global top-tier universities such as University of Cambridge and University of Cape Town as well as domestic gets such as Harvard University, Massachusetts Institute of Technology and University of Chicago. "It was too good to pass up."
In an interview with Forbes, Paucek insists 2U is not on a buying spree and will continue to launch and scale its major line of business, domestic graduate programs. "We believe that this opportunity, alone, can drive 30% revenue growth for the foreseeable future," the company said in its 2016 annual report.
In an industry confronting significant shifts due to technology, Paucek says that "Online education is reaching the mainstream in a way people used to think of as a little crazy. But online is here to stay. The value proposition is proven. We're not guessing. People think the 'giants' are awakening. No. They are awake."
To many this is the third wave of online education, beginning with the for-profit enterprises such as DeVry University and Strayer University and moving into MOOCs (massive open online courses) such as edX . Today's growth appears to be in certificate-targeted associations, as seen in the GetSmarter acquisition.
"This is a good time for us scaling," says Rob Paddock, 33, GetSmarter's chief academic officer who has a master's in online and business education from The Open University, highlighting the company's push to reach one million students by 2030. Students typically pay about $2,300 per short-course, normally in installments, and GetSmarter has a revenue share with the university. "Originally working with South African institutions, we understood the value of the high-touch approach," he says. "The unfortunate association of online education is that it is computer-mediated and content is thrown at you. Our pedagogical model is rich in collaboration, engagement and support."
And now rich in funding. Getsmarter will continue to operate independently and run by its current management team, including CEO Sam Paddock, 35.
Caroline Howard
My stories highlight and explore the major stories of the day through the lens of education, power and innovation. A senior editor at Forbes, I edit the America's Top C