Friday Follow Up

2U's CEO transition, OPM and LMS M&A, Fall FAFSA fallout, and an AI podcast of Morgan's post

Phil Hill
October 04, 2024

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Our Follow Up posts are provided for paying On EdTech+ subscribers to cover various news events that don’t merit their own posts and updates on newsletter posts with new information. Moving forward, we plan to make this series more consistent, coming out weekly. And Friday offers alliteration, so naturally Friday Follow Up. Today’s post is offered to all subscribers (free and premium), partially to allow feedback on the format but also because the ending AI podcast version of Morgan’s recent post is so interesting.

2U CEO Transition

Today 2U announced a CEO transition. For more than a decade, Chip Paucek was the CEO, and the company culture flowed around and through him. Almost a year ago, Chip was forced out, and 2U named CFO Paul Lalljie as the new CEO. At the time, I was skeptical.

While we’re on the topic of 2U executives, I find it strange that the CFO who was in place and in charge of the key financial decisions that helped lead to 2U’s current situation has been elevated to CEO.

As I got to know Paul, I better understood his strengths, in particular around changing the company culture. But those days are gone based on the news release today.

2U, a global leader in online education, today announced that Paul S. Lalljie is stepping down as Chief Executive Officer of the company. Lalljie has been 2U’s CEO since late 2023 and led the company through a successful financial restructuring completed in September. 2U’s Board has initiated a thorough search for a permanent successor and has appointed Matthew Norden as interim CEO to lead 2U during this transition. Norden is currently 2U’s Chief Financial Officer and he will continue serving in that role while acting as interim CEO.

My initial thoughts are that this change represents the new board leadership as the company exited its short bankruptcy, especially with the new executive chairman and industry veteran Brian Napack (former chairman of Blackboard, former CEO of Wiley). New company, new direction, looking for a new CEO. As the release states, Lalljie got the company through a remarkably fast and orderly bankruptcy, but now is a time for strategic change, not just survival.

The other issue is that it should be much easier hiring a new CEO now that the company has gone through bankruptcy, left the public markets, and increased its available cash. Now’s the time.

OPM and LMS Acquisitions

There continues to be consolidation in the EdTech markets, which is no surprise given the tough financial times.

OPM / marketing & enrollment firm EducationDynamics acquired two companies.

EducationDynamics (EDDY), the nation’s leading experts in marketing and enrollment management services for higher education institutions, is proud to announce the acquisition of the RW Jones Agency (RWJ) and Rankin Climate businesses. RW Jones Agency is a nationally recognized leader in strategic communications, institutional brand marketing and research. Rankin Climate is the leader in campus climate research. EDDY is a portfolio company of Renovus Capital Partners.

There initially are two items of note. First, the release highlights that this activity is driven by private equity (PE) ownership (Renovus), with PE being the primary financial source of most M&A activity in EdTech these days. We’re not in a VC world anymore - a lot of rollups, a lot of opportunistic acquisitions, a lot of financial engineering. Second, the EDDY leadership emphasized the need for holistic support of institutions - not segmented by traditional / non-traditional, or by on-campus / online. The old distinctions are becoming less relevant.

In separate news, private equity firm General Atlantic is close to acquiring the UK firm that owns Open LMS, the LMS formerly known as Moodlerooms.

Learning Technologies Group (LTG) looks set to become the latest in a string of takeovers of British companies.

The London-listed company said Friday that it was “minded to recommend unanimously to LGT shareholders” a cash offer of £1 per share from U.S. private equity firm General Atlantic. The offer values LTG at about £792 million ($1 billion).

Open LMS is not the largest part of LTG, but it is worth noting for our coverage. And add to the private equity angle the additional aspect of US private equity acquiring British firms. And a further removal of an EdTech firm from public markets. There aren’t many left.

Fall FAFSA Fallout

I promise not to overdue the F alliterations, at least starting next week.

Following on to our coverage about Fall 2024 enrollment impacts from the FAFSA fiasco, ratings agency S&P released a credit note on US community colleges. Worth noting is that this gives more broad-based confirmation of what I have noted a few times about positive signs, especially across public statewide systems, often community colleges. From S&P:

Fall 2023 enrollment data indicate that enrollment was up by over 3% and continues to recover, and preliminary fall 24 enrollment data show more of the same.

But we have also noted that there are a lot of winners and losers, with private nonprofits often leading the latter category. As such, note this explanation from Drexel University on its significant budget deficit and need for restructuring.

Furthermore, as a University that routinely enrolls many Pell Grant-eligible students, Drexel was seriously impacted by the flawed rollout of the new Free Application for Federal Student Aid (FAFSA). As a result, we are on track to meet our revised enrollment goal of 2,350 new, first-year undergraduate students, about 500 students less than our original budgeted target. Our proactive efforts to help our admitted students — accompanied by a successful campaign to recruit 110 more transfer students than last year, including 75 students from the University of the Arts — helped to mitigate the impact on our overall enrollment. Nonetheless, the decline in first-year enrollment has added $22 million to our current operating budget deficit, which we must close as soon as possible.

Ouch. That is a 17.5% drop in budgeted first-year undergraduate enrollment despite a successful transfer campaign that included the University of Arts fallout. Put another way, FAFSA seems to be causing a 26% organic drop in incoming students (500 + 110) / 2350.

AI Podcast Fun

Google has an AI tool called NotebookLM that is designed to create alternative content around uploaded data sources. Following yesterday’s post where I shared an On EdTech chatbot example to look at AI fine-tuning, this time I uploaded Morgan’s post from Tuesday on microcredentials as got NotebookLM to create a podcast episode. Have a listen - it’s quite good in my opinion, even making fun of Morgan’s usage of LMS terminology.