Noodle Partners, which works with colleges to build and offer online programs, recently ditched the second part of its name. But the New York City-based company has a new partner to help expand its footprint in an increasingly competitive market.
Yesterday, Noodle announced it had acquired the “key assets” of HotChalk, a Campbell, Calif.-based company that also offers online program management (OPM) services for higher-ed institutions.
The deal has signs of a troubled sale, given that HotChalk was in the hot seat not too long ago. In February, one of its biggest customers, Concordia University Portland, shut down due to financial insolvency. An investigation by The Oregonian attributed those problems to its deal with HotChalk, under which the college paid over half of its revenue to the company (as much as $62 million during one year). Layoffs at the company followed, and HotChalk sued the college’s parent organization—a Lutheran church—alleging it was defrauded and that Concordia could have made the cuts necessary to survive.
Noodle CEO and founder John Katzman has been an outspoken critic of such tuition revenue-share arrangements that HotChalk enters into with universities. He wasn’t always this way. 2U, the last company he founded and which Noodle competes with, operates in this manner, as do other OPM providers. But he’s had a change of heart and has written at length arguing these deals are too expensive for colleges and keep costs high for students—a point that is the subject of an ongoing, fierce debate among the higher education industry.
What Noodle is acquiring is not HotChalk’s business model, though. It will take over HotChalk’s existing programs, including several other Concordia programs still in operation, and three teacher-training and leadership programs offered via New York University’s Steinhardt School. Inside Higher Ed reports that talks are underway “about transitioning from the revenue-sharing model it used with HotChalk to more of a fee-for-service model that Noodle favors.”
Noodle’s model is somewhat similar to a general contractor. Colleges pay for the services that they need, some of which are outsourced to third-party companies, and others which Noodle provides. With this acquisition, Noodle will also bring into its fold a higher-ed marketing agency previously owned by HotChalk, Creative Communication Associates, and plans to make its services available to its university customers.
The outsized impact of the closure of Concordia-Portland on HotChalk’s business should serve as a warning about the risks of the revenue-share model, says Katzman. “I hope to acquire other traditional OPMs and work with their universities and convert them” to the fee-based services offered by Noodle.
Fifty-five people across the marketing, enrollment and technology teams from HotChalk 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 investment capital, most of it from German publisher Bertelsmann. Industry sources say that this transaction was likely nowhere near 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 University of Tennessee, to establish over 70 online programs. Across these programs, along with building the team and internal technology infrastructure, Katzman estimates Noodle has invested $60 million to date.
According to HolonIQ, an education market research firm, over 770 universities across the world are offering online programs through more than 200 OPM providers. It estimates that there could be almost 300 new partnerships formed by the end of 2020, nearly doubling the tally from the previous year.