Embanet was one of the earliest online companies in higher education, launched in 1995 when the internet was still known as the “World Wide Web.” The company was successfully helping established universities turn conventional degrees into digital online degree programs – and it was headquartered in Toronto, thousands of miles away from Silicon Valley.
TCV had already partnered successfully in the field with its investment in Capella Education Company, which operated one of the largest and most respected fully online universities. When TCV began looking at additional investments, it already knew the power of strong university brands to attract the most motivated students. Embanet knew it, too — its portfolio included venerable standouts such as Boston University, Northeastern University, and Vanderbilt.
These universities hesitated to invest in their own infrastructure for online degree programs, or increase staff to provide around-the-clock service to their students. But they were happy to provide their instructional staff and content resources, let Embanet turn it into full-service online education, and share the revenue generated by student tuition. Importantly, universities were able to maintain full control of key elements of the degree programs, including admissions, instruction, and financial aid. Embanet also got good grades in two areas that mattered to top-tier universities: help expand reach and enrollment scalability while supporting working students in completing their degree in an entirely online format.
The company’s Canadian location was an advantage for TCV, because the firm casts a wide net geographically, often investing in mature companies with a strong product/market fit that can develop quietly outside of the usual tech hotbeds. TCV’s goal is to assist those organizations in scaling rapidly, often bringing some of the best practices created and refined in Silicon Valley.
After several years of relationship building with Embanet’s owners, TCV was tapped to lead a leveraged buyout of the company in 2007. The founder of Embanet was ready to hand over the reins to a growth-focused firm with significant experience scaling historically bootstrapped businesses. In connection with the transaction, TCV general partners Jake Reynolds and John Drew became members of the board of directors. One of the first tasks was to recruit a new management team, led by Steve Fireng (CEO) and Patrick Donoghue (CFO). With support from TCV board members as well as TCV principal Nari Ansari, the team invested in technology and infrastructure to support growth.
“TCV was a great strategic ally. They also brought in best practices that helped us strengthen operations in key areas.”
– Steve Fireng, CEO of Embanet
Embanet grew revenue 150% in less than three years after the buyout, with a full-service offering to traditional universities that included capital investment, program development, content digitization, marketing and enrollment services, online faculty training, student services, and technology hosting and support. Yet there was a tough test ahead. Competitors were copying Embanet’s strategy of signing universities to long-term contracts, and the pool of uncommitted tier one schools was shrinking. “Steve and Patrick were delivering strong organic growth,” Jake Reynolds recalls, “and at TCV we’ve seen the rise of competitors as another form of growth opportunity, so we helped the team develop a strategy to leverage this to Embanet’s advantage.”
After a close look at Embanet’s competitors, TCV merged Embanet with the next largest player in the sector, Compass Knowledge Group, to create a clear market leader called EmbanetCompass. TCV took an active role in negotiating the 2010 merger, executing due diligence, and integrating the two companies. As part of its continued support for the organization, TCV also substantially increased its equity investment. Subsequent to the merger, the founder of Compass Knowledge Group, Daniel Devine, a visionary in the online program management category, joined the board of EmbanetCompass as Vice Chairman, providing valuable continuity for the combined organization.
While the transaction significantly increased revenue and expanded the platform for growth in degree programs, the integration was not without its challenges. The two companies employed different approaches as well as different processes and systems. “We adopted a rule that the best idea wins,” Fireng recalls. “We didn’t care about which company it came from.” This approach smoothed out cultural as well as operational differences, enabling the combined company to continue its growth trajectory.
It didn’t take long for EmbanetCompass to attract attention from potential acquirers. In response to such inbound interest, TCV engaged Morgan Stanley in 2012 to advise on strategic alternatives. The TCV team worked in earnest alongside management, advisors, and other shareholders to position EmbanetCompass for what ultimately ended up being a successful transaction with Pearson, the global educational publishing powerhouse that was transitioning from print to digital. “It was the largest strategic acquisition anyone had done in eLearning at the time,” observes Nari Ansari, “so it was not going to be easy.” Jake Reynolds recalled, “We spent considerable time working with management ahead of the diligence, helping the team prepare for the process, as well as aiding in drafting and negotiating of the deal.”
It all paid off in the end. In fact, the acquisition price of $650 million by Pearson validated the decision to exit via acquisition rather than IPO.
“For the exit, the management team was totally aligned with TCV. They are experts with M&A, both in strategy and execution.”
– Steve Fireng, CEO of Embanet
It was also a win for Pearson, as its new higher education online services unit (the former EmbanetCompass) has more than doubled revenue since the time of the acquisition of EmbanetCompass. And as TCV envisioned more than a decade previously, online degree programs now provide a major revenue stream for traditional universities around the world.