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ACT Standardized Tests Moved Into A For-Profit Company

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ACT Inc., the Iowa City-based nonprofit behind the ACT, a standardized test used in college admissions, announced Wednesday that it has agreed to move the test into a new for-profit company. That entity will be majority owned by Nexus Capital Management, a Los Angeles-based private equity investment firm, with the current nonprofit ACT retaining a minority interest and continuing to do research on education and workplace success. Encoura, an ACT subsidiary that offers data science and strategic college enrollment services, will also be a part of the new for-profit.

The new for-profit is fashioning itself as a “public benefit corporation.” That doesn’t make it tax-exempt or keep it from distributing profits to its owners. It does mean the new corporation’s board is supposed to take the public good, as well as shareholders’ interests, into account. Janet Godwin, ACT’s current CEO, will be CEO of the new entity. The new corporation, like the remaining nonprofit, will be based in Iowa City.

ACT Inc. has struggled for years to break even. The nonprofit posted a net loss of $12 million in fiscal year 2022 ended in August 2022, a net loss of $6 million in fiscal 2021, and a net loss of $60.5 million in fiscal 2020, when the number of test-takers declined precipitously during the Covid-19 pandemic, according to its recent 990 tax filings. Just under 1.3 million students took the ACT in calendar 2021, down from the two million who sat for the test in 2017. The number of test takers has since recovered slightly—to 1.4 million in 2023. (In 2023, 1.9 million high school students took the SAT, which is also administered by a nonprofit, the Educational Testing Service.)

News of the partnership comes as a number of prestigious colleges and universities—including Brown University, Dartmouth College and Yale University—have announced plans to reinstate test requirements for admissions that were dropped during the pandemic. It’s unclear, however, how many institutions will follow that lead.

At the end of fiscal 2022 (the last year for which a 990 is publicly available), ACT’s assets were $225 million, down 44% from $399 million at the end of fiscal 2019. Spokespeople for ACT declined to say what its current assets are, or whether it is running low on cash. Godwin said in an interview that all the nonprofit’s operating assets would be transferred to the new company, while some amount of cash—she wouldn’t disclose how much—will be paid to the nonprofit by Nexus.

Godwin characterized the merger and the unspecified cash infusion that the new corporation will get from Nexus as a way to accelerate ACT’s strategy of expanding its services into the workplace and training markets. “We’re focusing not just on students going to college—we’re focusing on students who are transitioning straight into the workforce,” Godwin said. “And so we’ve spent some time building this strategy. I’ve been traveling the country vetting the strategy with all of our stakeholders across our workforce development areas, higher ed, states and districts, parents and learners. The resounding feedback has been ‘Yes, ACT, you’re on the right path. Please go fast. We need you to bring more services more quickly.’”

Test pricing will not change as a result of the new partnership, according to the ACT website. Currently, the ACT costs $93 with the writing portion of the test, and $68 without. That fee includes score reports for the test-taker, their high school and up to four colleges of their choice. Students may send their scores to additional colleges for $18.50 each. ACT leaders also say there will be no immediate changes to the test or ACTs other offerings, which includes workforce and college readiness products.

Nexus Capital Management’s portfolio also includes Savvas Learning Company, a business that designs K-12 curriculums, as well as about a dozen business services, chemicals, consumer and e-commerce companies.

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