Cape Town acquired its newest billionaires yesterday when Rob and Sam Paddock sold their ten year old online education business GetSmarter for $103m. In cash. And provided the next two years’ earn out targets are met, their total haul will rise to over $133m, or R1.8bn at the current exchange rate.
This is a serious price tag for a company that few South Africans have ever heard of, and which last year generated total sales of $17m. But it is a reflection of the potential which technology offers to leverage the country’s cheap but world class skills into a hard currency paying global arena.
I came across the Paddock brothers last August when GetSmarter got a mention on the BBC. They were delighted to engage and the result was an extensive interview with Rob on Biznews which delivered more news value. It also unpacked a successful model for those seeking ways to translate South Africa’s often unrecognised advantage of a highly educated but hard-to-move crust into a skills scarce world.
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GetSmarter does this in one of the fastest growing sectors on earth by using technology to export higher education created at the best universities back into the First World.
It offers short courses in a range of subjects for working professionals in revenue sharing partnerships with top colleges including England’s Cambridge University and the US’s MIT and Harvard. Since its founding in 2007 the company has served more than 50,000 students from all over the world – achieving an astonishingly high 88% pass rate.
The Cape business’s new owner, Nasdaq-listed 2U (NAS: TWOU) is one of the fastest growing companies in the world’s cloud-based higher education sector.
Its model of offering the very best education to students of all ages anywhere on earth, is the kind of threat that the father of disruption, Harvard Professor Clayton Christensen, has for some years been warning his own colleagues about. Online businesses are grabbing ever bigger pieces of the $1.9trn a year global higher education pie.
Last year 2U’s revenues rose 37% to $206m. In the past 12 months its share price has surged from $16 to the current $44, valuing the business at over $2bn. With GetSmarter’s 2016 revenues at $17m, investors in the US business will be delighted to see it adding 8% to sales for an investment worth 6% of its market cap.
More interesting than the details of the transaction announced on Nasdaq last night is the confirmation it provides for those building global businesses from the low-cost SA base. They can redouble their efforts secure in the knowledge that the first world slice of SA compares very favourably with the world’s best. GetSmarter combines technology and academia – two very highly skilled sectors. And where it has gone, there are sure to be many other following.
