Byju’s Makes Its Move to Acquire 2U
In mid May I wrote a post “The Market Fall of EdTech Will Have Non-Financial Impacts” that included this observation:
Just before that post Bloomberg had a story that Indian EdTech giant Byju’s (giant in terms of its $22b market valuation, not in terms of its ~$1b revenue) was in talks to acquire either Chegg or 2U. Late yesterday came news that Byju’s made an offer to acquire 2U for just over $1 billion. Bloomberg further clarified:
Market Cap Context
While my main interest is in company strategy and operations – and not financials, per se – it is worth understanding the history of 2U’s public stock valuation and how it played a role in this potential acquisition. Put simply, for companies with money “assets are cheaper and deals are still looking attractive.” 2U would not even be a viable acquisition target if its market value had not collapsed recently.
2U had its IPO in March 2014 at a value of just over $500m. Three years later at the time of its announcement of the agreement to acquire GetSmarter, 2U was valued at $2.1b, and at its peak in June 2018, 2U was valued at $5.15b. When 2U announced its agreement to acquire Trilogy in April 2019, it was valued at $3.96b, but the stock fell quickly. In late July 2019, which I described in “July 30, 2019: The day the OPM market changed”, 2U dropped from $2.19b to $881m, but then the stock started rising again. When 2U announced its agreement to acquire edX in June 2021 for $800m, it was valued at $3.13b.
We don’t know if this deal will go through, but the fact that it is even under consideration is due to the drop in market valuation of 2U. Finances (potentially) affecting operations.
The edX Question
If this deal with Byju’s is accepted, edX will be another step removed from its nonprofit roots and university partner contributions. There was a lot of consternation about edX selling itself for cash to a for-profit company, but the concerns did not change strategic decisions for the most part as I described in November.
Would a Byju’s acquisition change that dynamic?
In August 2021 I described the strategic moves of Coursera and of the new combination of 2U and edX.
In May’s Q1 earnings call, 2U CEO Chip Paucek gave an update on how this strategy is progressing.
2U has also moved to make edX its consumer-facing brand. Investors have not been sold on the strategy, at least during the overall tech market crash, but perhaps a company with longer time horizons might be.
I don’t want to go too far into speculations upon speculations, but a big question is why Byju’s might be acquiring 2U. The Bloomberg story mentions its plans to “expand into the US”, but that is vague. Byju’s is primarily a K-12 online learning provider working directly with students (B2C), so this move would include more than just a geographic expansion. Byju’s acquired Great Learning from Singapore in July 2021 for $600m, and GL announced an agreement to acquire Northwest Executive Learning, a Singapore-based provider of executive education as described in IndiaTimes.
When I was contacted by the press story on the acquisition, the promo material positioned Northwest against both Coursera and edX [emphasis in original email].
“premiere professional learning edtech platform” – this is interesting positioning for upskilling and executive education, but it is not based on degrees and higher education.
One way to view Byju’s interest is not just expaning into the US, but doing its own work to fill out a K-12 through higher ed through professional and executive education spectrum of offerings. However, the core Online Program Management (OPM) business of 2U is B2B in a difficult market with increasing regulations. How much interest would Byju’s have in the 2U degree business versus the more consumer-oriented MOOC-based edX business? I realize that 2U was working to integrate these pieces into a whole, but it is not clear if Byju’s would continue the same strategy, especially with the growing regulatory scrutiny of the OPM market.
And if the acquisition goes through, it will impact the OPM market beyond just Byju’s strategy.
I realize that this post is more about setting context and asking questions than it is about definitive analysis, but this is a developing story we’ll have to watch.