Noodle Partners, which works with colleges to create and deliver online programs, recently abandoned the second part of his name. But the New York-based company has a new partner to help it expand its presence in an increasingly competitive market.
Yesterday, noodles announcement he had acquired the “key assets” of HotChalk, a Campbell, Calif., company that also provides online program management (OPM) services for higher education institutions.
The deal has signs of a tough sell, given that HotChalk was in the hot seat not too long ago. In February, one of its biggest clients, Concordia University Portland, closed its doors due to financial insolvency. a investigation by The Oregonian attributed these problems to its deal with HotChalk, under which the college paid more than half of its revenue to the company (up to $ 62 million in a year). Layoffs at the company followed and HotChalk sued the college’s parent organization – a Lutheran church – alleging it had been defrauded and that Concordia could have made the cuts necessary to survive.
Noodle CEO and founder John Katzman has strongly criticized the tuition revenue sharing agreements HotChalk has made with universities. It wasn’t always like that. 2U, the last company he founded that Noodle competes with, works this way, as do other OPM providers. But he changed his mind and writing claiming at length that these agreements are too expensive for colleges and keep costs high for students – a point that is the subject of fierce and ongoing debate within the higher education industry.
What Noodle acquires, however, is not HotChalk’s business model. It will take over existing HotChalk programs, including several other Concordia programs still in operation, and three teacher education and leadership programs offered by the Steinhardt School at New York University. Inside higher education reports that talks are underway “on the transition from the revenue sharing model he used with HotChalk to a fee-for-service model that Noodle favors.”
Noodle’s model is somewhat similar to that of a general contractor. Colleges pay for the services they need, some of which are contracted out to third-party companies and others provided by Noodle. With this acquisition, Noodle will also integrate into its fold a top-level marketing agency that previously belonged to HotChalk, Creative communication associates, and plans to make its services available to its university clients.
The disproportionate impact of the Concordia-Portland closure on HotChalk’s business should serve as a warning about the risks of the revenue-sharing model, Katzman says. “I hope to acquire other traditional OPMs and work with their universities and convert them” to the paid services offered by Noodle.
Fifty-five people within HotChalk’s marketing, enrollment and technology teams will join its new owner, including CEO Rob Wrubel, who will serve as Noodle’s chief marketing officer.
Financial terms of the deal were not disclosed. Founded in 2004, HotChalk has raised $ 235 million in private equity, most of it from German publisher Bertelsmann. Industry sources say this transaction was likely far from that amount.
Noodle, which raised $ 16 million in June, has worked with more than two dozen universities, including Howard, Tufts, the University of Michigan and the University of Tennessee, to establish more than 70 online programs. Through these programs, along with building the team and internal technology infrastructure, Katzman estimates that Noodle has invested $ 60 million to date.
According to HolonIQ, an education market research company, more than 770 universities around the world offer programs online through more than 200 OPM providers. This estimates that there could be nearly 300 new partnerships formed by the end of 2020, almost double the previous year.