Zovio takes steps to disband, aims to sell Fullstack Academy for $55 million

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Diving brief:

  • Zovio, a struggling educational services company, is taking steps to sell its assets and close, according to a deposit tuesday with the United States Securities and Exchange Commission.
  • The Company’s Board of Directors recommends that Zovio liquidate its assets and pay any cash balance to shareholders once the Company has met its legal and other financial obligations. The liquidation would include the sale of Fullstack Academy for up to $55 million, which would give the company up to $20.3 million to distribute to shareholders. although he said he couldn’t give any guarantees.
  • The announcement comes after Zovio has terminated its service contract with its largest client, the University of Arizona Global Campus, and sold its tutoring services business, TutorMe. The dissolution plan will begin if a majority of shareholders give their approval.

Overview of the dive:

Zovio, formerly known as Bridgepoint Education, owned two for-profit universities that collectively brought in nearly $1 billion in annual revenue in 2012. But as regulations surrounding for-profit institutions tightened, the company attempted to transform into an educational services company.

This pivot began around 2018, when the company merged its two institutions, the University of the Rockies and the University of Ashford. The combined college retained the Ashford name. The following year, Bridgepoint renamed Zovio and acquired two companies: boot camp provider Fullstack Academy and tutoring platform TutorMe.

In 2020, Zovio sold Ashford to the University of Arizona, abandoning its role as a for-profit university operator. The public flagship renamed the institution the University of Arizona Global Campus, or UAGC, and has maintained close ties with Zovio through a 15-year contract with the company. Under this contract, Zovio agreed to provide services such as marketing and recruiting in exchange for a cut in online college revenue.

However, Zovio’s pivot to an education service provider quickly fell apart. UAGC enrollment dropped in the first year – a continuation of a trend that had begun under Ashford. The two parties ended their contract in August, with the UAGC president saying the university wanted more control over its operations.

But those aren’t the only issues that have hammered Zovio’s results.

Earlier this year, Zovio lost a lawsuit filed against it by the state of California, which accused the company of misleading students about its educational programs and career prospects. San Diego Superior Court Judge Eddie Sturgeon cited evidence in his decision finding that Zovio made 1.2 million misleading calls to prospective college students from March 2009 to April 2020.

Sturgeon fined Zovio $22.4 million. The company took out a $31.5 million loan to pay the fine, according to SEC filings. She then sold her business TutorMe for $55 million in cash and used the proceeds to pay off the term loan.

Zovi filed an appeal in the California trial over the summer.

External Affairs Chief Vickie Schray did not respond to a request for comment on Wednesday. When Zovio terminated his contract with UAGC, he gave the university the right to receive any reimbursement of the $22.4 million fine Zovio could win in his appeal, according to his filing with the SEC. of Tuesday.

Fullstack Academy is Zovio’s only remaining activity. The company expects to be able to sell the boot camp provider for between $34 million and $55 million.

So far, some buyers, including private equity firms, have shown interest in Fullstack Academy. But Zovio’s management believes it may not be possible to close a deal with any of those buyers before the company runs out of cash, according to the SEC filing.

Zovio officials believe the dissolution of the company gives it the best chance to sell the remaining business and other assets.

At the end of August, Zovio had approximately $63.2 million in assets. About $19.7 million of that was goodwill, an intangible asset that can include a company’s brand reputation, loyal customer base or positive employee relationships.

Before Zovio can distribute cash to shareholders, it must settle the remaining debts on its balance sheet. The company estimated that it would have to pay $2 million in salary and operating expenses in September and October. He also predicted that it would cost about $40.3 million to sell Fullstack, including $19.5 million for employee severance and $5 million for debt repayment.

It will also have to pay rental obligations for its offices and insurance policies.

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