Varsity Tutors to Go Public at $1.7B Valuation Through SPAC Acquisition
Being nerdy pays off, and soon there will be another education technology company on the public market.
Nerdy, the parent company of Varsity Tutors, an online tutoring platform, will be acquired by TPG Pace Tech Opportunities, a special purpose acquisition company.
The deal will give Nerdy a valuation of $1.7 billion, making it the first billion-dollar technology company based in St. Louis, according to the St. Louis Post-Dispatch.
The transaction includes $450 million that TPG Pace Tech Opportunities raised from its IPO last October, along with another $300 million from forward purchase agreements and PIPE financing (another way for TPG Pace to raise additional capital from investors). The acquisition is expected to be complete in the second quarter of 2021, and Nerdy will be listed on NYSE under the tickers NRDY.
Better known by its Varsity Tutors brand, Nerdy was founded in 2007 by Chuck Cohn, then an undergraduate at Washington University in St. Louis. It began as an online directory where students could find local tutors for in-person sessions, and Cohn continued working on it as a side business after he graduated and worked in finance. He rejoined in 2011 and became its full-time CEO.
In the years since, the company has grown to become one of the biggest players in the online tutoring space, claiming tens of thousands of tutors with expertise across more than 3,000 subjects. In 2020, users logged over 4.7 million hours of live instruction.
Along the way, Varsity Tutors raised $107 million in venture capital from firms including the Chan Zuckerberg Initiative, Learn Capital and Technology Crossover Ventures. These investors are expected to retain a more than 50 percent ownership stake in the company.
Today, Varsity Tutors no longer facilitates in-person tutoring, having shuttered this business last April due to the pandemic. But it has doubled down on its online services, which now include small-group classes alongside one-on-one sessions. The company also offers free large classes on topics for K-12 students across that accommodate up to 50,000 students at once.
Like many other online education providers, Varsity Tutors saw a surge of usage and spending during the pandemic. According to its SEC filing, revenue for the fourth quarter of 2020 grew 87 percent over the same period in 2019, and its numbers of paying active learners and paid online sessions also grew, by 59 percent and 169 percent, respectively. These figures help add up to $106 million in revenue for 2020—a 16 percent growth over the previous year.
Still, the company estimates it will post a loss of $23 million in 2020, and does not expect to turn a profit until 2023.
Varsity Tutors, which had previously acquired two other competing companies, could pursue further purchases, Cohn told the St. Louis Post-Dispatch. The company is expected to have approximately $300 million cash after the transaction.
TPG, the private equity firm behind the deal, is an investor in other edtech companies through its social-impact arm, The Rise Fund. These include DreamBox Learning, EverFi, InStride and Renaissance Learning. TPG was also a backer of Lynda.com, an early pioneer in online video instruction, which was acquired by LinkedIn for $1.5 billion in 2017.
By going public through a SPAC, Nerdy will be following a couple of other edtech companies that have gone down this route. Last year, corporate-learning company Skillsoft and English-language learning provider Meten were acquired in a similar manner.
They will likely soon be joined by others, as several other SPACs have already raised money to specifically acquire an edtech company. These include Adit EdTech Acquisition Corp. and Class Acceleration Corp., led by longtime industry investor Michael Moe.