Big changes are happening in the OPM world. Let’s get to the news.
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On to the update. [full-page audio link]
Pearson, owners of one of the biggest Online Program Management (OPM) businesses in the world, announced that it has concluded its strategic review and entered an agreement to sell that unit to private equity firm Regent LP.
In August 2022, Pearson plc, the world’s leading learning company, announced a strategic review of its international Online Program Management (OPM) business, Pearson Online Learning Services (POLS).
The sale of this business concludes the strategic review and demonstrates further progress in reshaping Pearson’s portfolio towards future growth opportunities centered on lifelong learning.
There appears to be no upfront payment for the POLS business; instead, Pearson will receive 27.5% of adjusted EBITDA (profit, more or less) for the next six years, and if Regent cleans up and (re)sells the POLS unit, Pearson will get 27.5% of the proceeds.
In short, this is somewhat of a distressed sale. Get this mess off our hands, you make the big cuts to get it profitable, and we’ll make money only if you can turn it around.
The POLS business was making annual revenues of $189 million along with $32 million in adjusted operating losses, exclusive of the Arizona State University (ASU) deal which will terminate as of June. Prior to ASU’s phased departure, that contract had reportedly accounted for almost 40% of Pearson’s revenue ($118 million), according to the London Times.
But ASU was not the only defection, as Ohio University, which I believe was Pearson’s third-largest OPM client, recently switched to Wiley as its OPM provider.
Add to these losses the regulatory environment in the US, where the “bundled services exception” that underpins OPM tuition revenue sharing agreements is under review along with new third-party servicer (TPS) guidance that would effectively prohibit non-US EdTech providers to support US higher education institutions. While that guidance will likely change somewhat in the late spring, it is a major risk factor.
And it is worth noting that Regent LP is US-based.
Times Have Changed
Pearson began their OPM business out of its Denver office that also ran the eCollege Learning Management System (LMS) in the mid 2000s, and it was this unit was behind the lucrative ASU deal. In 2012, shortly after the bundled services exception guidance of 2011, Pearson acquired EmbanetCompass for $851 million (in 2023 dollars). EmbanetCompass was the largest OPM provider at the time, and Pearson built their OPM business on top of both this acquisition and the Denver operations.
Pearson has subsequently been eclipsed both other OPM providers such as 2U / edX (~$960 million revenue) and Coursera ($524 million revenue) and Wiley ($226 million for its University Services segment).
Despite the changes in POLS’ market prospects, Pearson was one of the big five OPM providers, and this sale will have an impact in the market.
On another note, it is worth pointing out that Pearson is moving headlong into “lifelong learning” and away from academic markets as their dominant business. Pearson sold its K-12 courseware business in 2019, and all signs are pointing to a broader mix of professional learning and some educational offerings. Pearson’s remaining position in higher education is now focused on Pearson+, its courseware subscription business, and Pearson MyLabs and Mastering courseware. From its 2022 annual report presentation: