From the Brink of Bankruptcy to a Better Future
Founded as a for-profit education company and growing to encompass several acquired subsidiaries, technology company, Zovio, found itself unprofitable after an attempted transformation to an EdTech services company. A challenging transition in the best of times, problems that existed before recruiting a new CEO had put the Company on a path to insolvency. In addition, regulatory pressures continued to exacerbate a complicated situation.
Recruited as a turnaround CEO in the fall of 2021 to attempt to change the calculus, veteran services industry leader Randy Hendricks quickly determined that a turnaround wasn’t possible.
Despite significant obstacles, Hendricks and his team began figuring out how to avoid bankruptcy, retain talent, and ensure that students did not have their education interrupted. To help analyze the complex situation, Hendricks retained Jon Henes, a twenty-five year veteran of the special situations industry, and his new strategy and communications firm, C Street Advisory Group. Typically, avoiding bankruptcy would mean selling the entire firm to a buyer, even at a loss, to keep the transition as smooth as possible. Due to its significant liabilities and future financial obligations, the Company could not attract buyers. So, Hendricks and the leadership team had to find a different path. They found it in Zovio’s subsidiaries.
Zovio was comprised of three separate entities. Fullstack Academy, TutorMe, and an Online Program Management business branded the same as its parent. Each represented a different segment of the larger EdTech services market. There was minimal overlap in services and offerings between each of these entities. Fullstack Academy offered tech bootcamp coding and cyber security programs to adult learners often searching for a career transition. TutorMe carved out a niche in the K-12 space, along with university partners, providing tutoring services to learners. And the online program management business (IT and business process outsourcing services) was geared toward universities and other prominent education providers.
Hendricks and his team, recognizing the potential in emphasizing the differentiating qualities of each of these entities, reframed Zovio as three separate businesses with three distinct opportunities for buyers. Zovio, the parent, would fade into the background as its subsidiaries took center stage. With this strategy established, the race was on to improve the performance of these businesses and then find interested buyers.
To determine which companies would be classified as “interested buyers,” Hendricks and his team looked for firms with similar interests and audiences to those of Zovio’s three subsidiaries. Perhaps these potential buyers would want to augment their existing capabilities or fill a perceived market gap. The team tailored their approach accordingly, seeking strategic homes for TutorMe, Fullstack Academy, and Zovio’s OPM business. And this strategy paid off.
By May of 2022, the team had improved the prospects of TutorMe to the point of profitability — and a buyer was waiting in the wings. GoGuardian, a company that sells technology and solutions to K-12 institutions, was interested in adding tutoring services to its portfolio. TutorMe would be an ideal fit and was sold to GoGuardian that month.
August of 2022 brought another sale for Zovio: its online program management company. “This was the most complex of the three transactions”, says Hendricks. Due to declining enrollment, the Zovio OPM business was losing money, making it the least attractive of the three Zovio businesses. The primary client of the Zovio OPM business was the University of Arizona, Global Campus (UAGC). For UAGC, the integration made solid business sense. They were familiar with the Zovio OPM services business and felt they could achieve synergies through an acquisition. Although this was not a profitable transaction for Zovio, it meant minimal job loss and no interruption for students, itself a significant success.
The last of the three businesses to find a home was Fullstack Academy, the tech bootcamp. By September of 2022, Hendricks and his leadership team had achieved profitability for Fullstack, and it had become a much more attractive target. Simplilearn, a Bangalore-based tech company backed by Blackstone, emerged as a potential buyer. Interested in expanding its services to a United States audience, Simplilearn found the answer in Fullstack Academy’s vital programs, marketing, university partnerships, and leadership team. Acquiring Fullstack Academy would be a strategic expansion for Simplilearn; they purchased it in November.
By the end of 2022, all three of Zovio’s subsidiaries had found homes with a vested interest in the education space. By divesting of TutorMe, Fullstack Academy, and Zovio’s OPM business, Hendricks and his team had saved 1,400 of the 1,500 total jobs and avoided bankruptcy altogether. And perhaps most importantly, they had ensured that the thirty-five thousand students benefiting from Zovio’s various services did not suffer learning losses.
“Avoiding a shutdown of Zovio, which would have resulted in the loss of 1,400 jobs and the stranding of thousands of college students, required strong leadership, a steady hand, a clear vision, and authentic and honest communication with all stakeholders,” said Henes. “Randy provided all of this and more. He literally, through positivity and force of will, saved Zovio from bankruptcy and all of the disruptions that would have caused. Instead, given the circumstances that Zovio faced at the end of 2021, he achieved a very favorable outcome for many of Zovio’s stakeholders.”
Strategic buyers’ acquisition of these three businesses points to the relevance of their offerings and services. Online education opportunities have increased rapidly; with the COVID-19 pandemic, these flexible learning opportunities have only grown more critical. Zovio’s three subsidiaries represent the new frontier for education, and their successful integration into innovative education organizations is a testament to their timely appeal.
What began as an unfortunate situation — a company on the brink of bankruptcy with thousands of students’ educations hanging in the balance — ended with three firms finding relevant homes, where they now contribute to thriving businesses. By reframing a big problem and executing a thoughtful strategy, the team saved jobs and learning opportunities for students of all backgrounds. Zovio’s wind down laid the groundwork for an exciting new chapter for its three former subsidiaries.