Last November, online education platform specialist 2U (TWOU -3.73%) teased that it was on track to more than double its annual revenue to $1 billion by 2022.
With the help of its latest high-tech acquisition, however, it seems that milestone will arrive much more quickly. On Monday, 2U announced it has agreed to purchase Trilogy Education, a provider of skill-based technology courses also known as tech "boot camps," in a cash-and-stock deal valued at $750 million.
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More specifically, 2U will fund the acquisition with a combination of $400 million in cash and $350 million in newly issued shares of common stock. Keeping in mind the yet-to-be profitable business ended last quarter with just under $475 million in cash and investments on its balance sheet, 2U secured a new $250 million term loan to help supplement the cash portion of the transaction.
These boots leave room to grow
Shares of 2U are down around 6.5% from Friday's close on the news due to a combination of sheer size of the deal (given 2U's modest market capitalization of under $4 billion) and, relatedly, dilution stemming from the impending share issuance.
But make no mistake, adding Trilogy Education to the mix could spur 2U's growth in a big way.
For one, Trilogy's focus on adult learners as a "workforce accelerator" echoes 2U's $103 million acquisition of GetSmarter in 2017, which expanded its reach to the lucrative niche of short courses and nondegree alternatives.
Better yet -- similar to the way GetSmarter added key partners to 2U's portfolio including MIT, Cambridge, and Oxford University -- Trilogy will nearly double 2U's university base from from 36 to 68, expanding its reach in Mexico and Europe while adding partners in Australia and Canada for the first time. All told, this will provide a perfect avenue to not only bring Trilogy's boot camps to 2U's existing base, but also to accelerate launches of 2U's graduate programs and short courses with Trilogy's partners.
To those ends, 2U co-founder and CEO Chip Paucek called Trilogy a "natural strategic fit and growth driver[...]," noting that the move should help 2U reach $1 billion in revenue by 2021, one full year earlier than previously expected.
"Increasingly, universities are attempting to add practical, technical skills to their degrees," Paucek added. "We simply future-proof the degree by adding this type of technical competency."
The bottom line
The acquisition has already been approved by both companies' boards of directors. So, assuming it also passes regulatory muster, the purchase is expected to close within the next two months or so.
When that happens, and as if 2U didn't already have a dominant enough position in the education technology space, it will have only further solidified both its long-term growth prospects and its industry leadership. And I think investors would do well to consider taking advantage of the pullback to open or add to their positions today.
