2U’s ‘Third Chapter’ Begins With a $750M Acquisition of Trilogy Education

Mergers and Acquisitions

2U’s ‘Third Chapter’ Begins With a $750M Acquisition of Trilogy Education

By Sydney Johnson and Tony Wan     Apr 8, 2019

2U’s ‘Third Chapter’ Begins With a $750M Acquisition of Trilogy Education

It’s a trilogy in the making, and for 2U’s third chapter, the online program management company wants in on bootcamps.

That’s how 2U co-founder and CEO, Chip Paucek, framed its latest deal: acquiring Trilogy Education Services, an education company that helps set up and run short-term coding programs at university extension schools, for $750 million. The deal is expected to close in two months.

Of that purchase price, $350 million will be paid in shares of 2U common stock. The rest will be paid in cash, with the help of a $250 million loan from Owl Rock Capital, plus $150 million of the company’s available funds.

Chip Paucek, CEO and co-founder of 2U, wrote in a blog post that the purchase extends the scope of 2U’s offerings to add both for- and non-credit technical skills-based curriculum, and to boost its network with local and regional employers that Trilogy partners with.

“When we think about the trajectory of a learner, from college to a masters program to a MOOC or to a bootcamp, there is a lot of opportunity for universities to play a role across that spectrum and reinvent themselves,” Paucek tells EdSurge in an interview. “If you take a top-tier degree with top-tier faculty and you embed some bootcamp elements, you’re modernizing the degree to make it even more relevant to employers in the long term.”

This marks the largest purchase to date by 2U, which launched in 2008 to work with colleges and universities to create online graduate degree programs. That was the focus of the company for its first nine years—or “chapter one,” as Paucek described in a conference call with investors on Monday morning. To date, 2U runs 58 such programs at 36 universities.

The second chapter involved adding GetSmarter, a South Africa-based provider of short online courses, which 2U purchased for $103 million in May 2017. That was 2U’s first acquisition, and it set the company on a path to pursue others. Last May, it raised $331 million through a common stock offering to “give the flexibility to pursue opportunities like what we did with GetSmarter,” he told EdSurge at the time.

Last year, the company also acquired CritiqueIt, a digital annotation tool, and struck a deal with WeWork so 2U students in its online graduate programs can study in its coworking spaces. As part of the arrangement, 2U also paid $13 million to Flatiron School, a coding bootcamp owned by WeWork, to use the school’s online learning platform.

The addition of Trilogy allows 2U to broaden its offerings even more by offering in-person and online bootcamps that cover a range of digital skills across coding design, UX, cybersecurity and other competencies in demand by employers.

Trilogy Education started in 2015 and has since grown to serving nearly 50 schools, offering about 120 programs that have served about 20,000 students. The company claims a network of 2,250 companies, including half of the Fortune 100, that have hired its graduates. (Trilogy has also acquired a few companies of its own to assist in its career placement efforts.) And it has raised $80 million in equity funding.

Trilogy CEO Dan Sommer says he wasn’t looking to sell the company before the arrangement with 2U started to come together. “We were not thinking about an acquisition at all. I was thinking more towards future IPO,” he says. “When we started a discussion with Chip and 2U, it furthered my belief that this was a great fit.”

Sommer and Paucek met two years ago at ASU GSV, an education technology conference that is also happening this week. “What was striking about that conversation was a shared set of values,” says Sommer. Paucek added: “We still believe universities are the ticket to social mobility for individuals.”

The two recently started meeting again, and the discussions about combining forces become more serious. And ASU GSV became the company’s goal post deadline for sealing the deal. “It’s like our anniversary,” says Sommer. The two companies officially signed the deal at 6 p.m. on Sunday evening.

Combined, 2U and Trilogy companies claim they will serve 68 universities, more than 150,000 students and offer more than 250 educational programs.

Trilogy operates in more than 50 cities around the globe and has notched deals in the with universities in Germany, the U.K., Australia and Mexico. It is expected to generate $135 million in revenue in fiscal year 2019, according to 2U.

“This marks the full entry of 2U into the corporate channel,” a business that Paucek says 2U has not focused much on to date—but Trilogy has. Trilogy works with local and regional employers to develop curriculum for its university bootcamps. About nine months ago, it began piloting programs with companies directly to help employers re-skill their workforce. Its corporate clients include Salesforce.org and Tech Systems, a global services company.

2U and Trilogy also announced on Monday their first client together: the University of North Carolina Kenan-Flagler Business School, which plans to create courses and bootcamps with the two education providers. 2U already hosts online classes for UNC Kenan-Flagler’s online MBA and Master of Accounting programs, and UNC-Chapel Hill offers web development bootcamp through Trilogy.

The new offerings will include an elective in Python for the school’s online MBA program, as well as courses and bootcamps around tech skills for its undergrad business major, covering topics such as coding, cybersecurity, data analytics and digital leadership skills.

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