Dive Brief:

• The University of Arizona is setting up a nonprofit institution targeting adult learners that will buy Ashford University, a for-profit online college that enrolls around 35,000 students, according to SEC filings Monday.
• Called the University of Arizona Global Campus, the new entity and Ashford's parent company, Zovio, will sign a 15-year deal, through which the latter provides a range of academic and educational services in exchange for 19.5% of the online school's tuition and fee revenue. 
• Zovio was looking to spin off Ashford as a nonprofit entity and become a services provider to it and other institutions.

Dive Insight:

The deal is similar to that between Purdue and Kaplan universities, which closed in 2018 and was criticized for binding the university to its services company in a way that stands to make changing partners difficult. 

And it comes as other public universities try to reach more nontraditional students in their states. The University of Massachusetts announced in June that it plans to partner with Brandman University to scale its online programs. And the State University of New York has explored how to improve its online offerings and reach more adult learners.

"This fits a pattern, and I think we're likely to see more of these kinds of deals going forward," said Trace Urdan, managing director at investment bank and consulting firm Tyton Partners. 

The more such transactions happen, he added, "the more likely it is that others can get done, because you've provided cover."

UA Global Campus will pay $1 and take on some of Ashford's liabilities in exchange for Ashford's academic curriculum and content, $16.5 million in cash working capital and an additional $37.5 million upon closing. The new institution will also get Ashford's faculty, academic leadership and related staff, according to SEC filings.

Zovio will sign on for a 15-year term providing the new entity with a range of services. That includes recruiting, financial aid, counseling, institutional support, information technology and academic services. The university can end the relationship after seven years if it agrees to pay Zovio an amount equal to the services fees it paid to the company over the previous 12 months.

UA Global Campus will pay Zovio for the direct costs associated with the services it provides the institution plus 19.5% of its tuition fee and revenue, with an option to pay less during or after the seventh year if its revenue falls below a certain threshold. 

The university anticipates $225 million in guaranteed revenue for the 15-year term, including the closing payment. In an FAQ document the university shared with Education Dive, it said income from closing the transaction would "help alleviate the financial burden" it is currently facing. Last month, the university cut more than 250 employees through a mix of layoffs and not renewing contracts, according to local media reports. 

The deal must still be approved by Ashford's accreditor, WASC Senior College and University Commission. Its president, Jamienne Studley, said in an email Monday that Ashford has already begun that process. 

And it is subject to a pre-acquisition review by the U.S. Department of Education. Brent White, the University of Arizona's vice provost for global affairs, told reporters on a call Monday that the university expects to file for the review by early next week. Such a review lets the university know whether the department would put any restrictions on its approval of the arrangement, such as requiring the institution to put up a letter of credit as collateral.

The SEC filings state that closing is in part contingent on AU Global Campus and Ashford University not being told before Dec. 1 that they would have to post a letter of credit or have the U of Arizona cosign on a temporary or provisional program participation agreement.

Ashford will become UA Global Campus once the transaction is complete, which is expected in the fourth quarter of this year. White will lead the transition, and the U of Arizona's president will nominate the leader of the Global Campus. 

The U of Arizona says UA Global Campus will be distinct from its existing online arm, Arizona Online, having different programs, faculty and accreditation. Merging Arizona Online and Ashford was "not logistically possible at the outset" given those differences, according to the university's FAQ. Instead, they "will operate separately but in collaboration," and the university could bring AU Global Campus into Arizona Online "at its discretion in the future," the document states.

Zovio had been trying to separate Ashford as a nonprofit entity for several years. Earlier this year, Zovio said it would move forward with a separation rather than an acquisition. And in July, the U.S. Department of Education dropped its hefty requirement for such a move — a letter of credit worth $103 million, or 25% of the institution's 2018 Title IV income. Zovio said the term was removed because it tweaked the separation agreement's legal structure. 

Inside Higher Ed reports that the University of Arizona reached out to Zovio in late March about an acquisition.

While Zovio works with more than 135 university partners, it doesn't have agreements like that with Ashford and U of Arizona with other schools, Vickie Schray, Zovio's executive vice president and chief external affairs officer, said in an email Monday. Schray said Zovio "looks forward" to expanding its work with institutions after the transaction closes. Early last year, Zovio picked up a coding boot camp provider and an online tutoring platform.

The U.S. Department of Education did not answer Education Dive's questions emailed Monday.