Start-ups and Acquisition: Decoding the $1 Billion Byju’s-Aakash Deal

The largest EdTech acquisition in India


Indian start-ups ended 2020 with about $9.3 billion fundraisings, much less compared to the record $14.5 billion raised in the previous year. The covid19 pandemic and a handful of other factors like the absence of big investors slowed deal making for start-ups in India in 2020 as elsewhere. However, Byju’s could raise over $1 billion in 2020 and is already inching closer to closing another 500 million dollars. We are now getting some answers as to why Byju’s raised this money. The answer is the news that Byju’s is acquiring Aakash Educational Services Ltd (AESL) for $1 billion in cash and stock combo at a valuation of $12 billion. Byju’s buyout of Aakash is one of the largest such acquisitions by an Indian start-up – bigger than Snapdeal’s purchase of Freecharge for $400 million in 2015 and Flipkart’s acquisition of Myntra for an estimated $330 million in 2014. 

Byju’s is currently the most valuable EdTech start-up in the world and the second most valuable start-up in India from any sector after Paytm. Byju’s is also one of the only three decacorns (newly set up companies valued above $10 billion) in India at a value of US$15B (though valued at $12 billion for Aakash deal), the others being Paytm and OYO.

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I was a teacher by choice and an entrepreneur by chance.

-Byju Raveendran, the founder CEO of Byju’s

Glance through a bit of history of Byju’s and Aakash

Let us take a quick look at the journey of Byju’s and Aakash so far for us to get a better perspective of the deal and the road ahead.

A brief history of Byju’s Learning App (Think and Learn)

Byju Raveendran, the founder CEO of Byju’s was born into teacher parents and raised in Azhikode, a small, humble town in the Kannur district of Kerala. When Byju Raveendran was working as an engineer with a shipping company based in the UK, he started to help his friends prepare for the CAT exam, an entrance exam for getting into the best b-schools of India. To test himself out of curiosity, Byju also gave the exam and secured 100 percent in his first attempt. Surprised and thinking it was a fluke, he attempted once again. Again, 100 percent score! Maybe that was the first big turning point in his life.

Though he secured a score others would die for, Byju decided not to enter into India’s finest graduate programs known for their cut-throat competition and minuscule admission rates. Soon the two friends who wanted him to tutor them for CAT turned into 4, and then 8, all of a sudden 16. Between 2006 and 2011, Byju’s tutoring sessions went from 40 students to over 1,000 at crowded venues across various metro cities. By 2010, over 1,200 aspiring MBA applicants fought their way into this popular course through his classes.

An aha moment occurred for Byju when he realised that many of his college graduate students were struggling in math and science from a foundational perspective. He felt that the students didn’t have a core understanding of logic; their entire schooling was focused on exam grades, not learning the concepts and fundamentals. Pain point identified, the next big turning point for Byju.

“I was a teacher by choice and an entrepreneur by chance.” – says Byju Raveendran. In 2011, Think and Learn (Byju’s learning app’s parent company) was launched by him, and his wife and co-founder, Divya Gokulnath. Byju realised if he could raise the funds, he could create, package, and deliver the best educational content for students across India to solve the identified pain points because he had an uncanny passion and knack for teaching ideas and concepts the way which would later revolutionise such coaching.

He correctly identified the need for a product and platform that would appeal to the parents of the students, who prioritise quality education for their children over anything else. That meant that Byju’s would have to beat out the incumbent players in the conventional tutoring and coaching space that many traditional households were already paying for.

In 2015, he launched Byju’s – The Learning App which currently has over 80 million students cumulatively learning from the app, 5.5 million annual paid subscriptions, and an annual renewal rate of 86 percent. This was achieved by strategically pivoting from exclusively serving aspiring graduate school applicants to the larger untapped market: 250 million+ K-12 grade students in India.
In place of the traditional model of integrating physical classroom environments into digital tools or platforms, Byju’s decided to disrupt the outside-the-classroom digital experience. By investing upfront in content development and curation focused on the core subjects of Math, Science, English language, and Arts, Byju’s did develop a massively entertaining and engaging library of lessons in fundamental subjects for every student in the K-12 segment and undergraduate students aiming for admission to India’s premium graduate schools.

Rather than just offering a digital version of outdated learning methods/styles as has been the trend till recently, Byju’s strategy is to embrace everything that makes learning fun, entertaining and relatable. For example, students would learn about gravity via a neatly assembled graphic video of the earth, moon’s orbit, and an instructor walking quickly but articulately through an example of the moon’s relationship with the earth. Byju’s methods ensure that complex concepts and theories get delivered in easily comprehensible and digestible forms.

Byju’s co-founder Divya Gokulnath declared a $370M in revenue for the year ended 31st March 2020. The elite venture capital investors across the globe have started noticing Byju’s potential and strengths, and funds have started flowing in easily. Funding rounds have so far come from some big investor names like Tencent Holdings, Sequoia Capital, Qatar Investment Authority, Chan-Zuckenberg Initiative, Owl Ventures and Mary Meeker which in turn has boosted Byju’s valuation and enhanced its brand.

All these firms are chasing the first true EdTech company that has successfully reached such great product-market traction quickly. With the support and strategic reach of these powerful firms, Byju’s stands formidable in its quest to gain international access.
With lots of cash on hand, BYJU’s has been aggressive in constantly keeping the brand top of mind of households by roping in the likes of Shah Rukh Khan, Virat Kohli, Lionel Messi. Some of the big sports celebrities sport the Byju’s jersey in various Indian national matches of different sports which reach large numbers of viewers across India and the globe.

A quick history of Aakash Educational Services Ltd

From a tiny brick and mortar coaching centre started in Delhi in 1988 to a Rs 1,200-crore-plus annual turnover, Aakash Educational Services (AESL) has dreamed big ever since its launch.

Starting a coaching business was a novel concept when it started but founder J C Chaudhry ensured that the company stayed relevant to changes and trends in the educational needs of students. In 2006, Aakash Chaudhary, his son, also joined ASEL after graduating from Harvard Business School.

Aakash Educational Services has more than 215 test prep centres, which coach 250,000 high-schoolers and prepare them for the hard-to-crack competitive exams to enter India’s top engineering and medical schools.

When Aakash wanted to expand and was in need of funds, there were plans to go IPO. When the IPO plans took a backseat, Blackstone picked up a 37.5% stake in AESL for $184 million in October 2019, valuing Aakash at $480 million.

Byju’s’s saga of acquisitions

The acquisition of the offline test prep leader Aakash Educational Services by Byju’s to accelerate offline growth is the current hot news in the business circle, particularly in the start-up community. The acquisition will create an online-offline omni-channel synergy to further consolidate Byju’s leadership position in the world’s second-largest internet market and accelerate its offline growth.

India’s online EdTech leader will combine forces with the three-decade-old, Blackstone Group Inc. backed Aakash in a deal that involves about $600 million in cash and the remainder $400 million in stock, according to the sources. Byju’s is an unconventional start-up looking for acquisition which is strategic for inorganic growth, integration, and taming competition.

Previous acquisition deals by Byju’s

So far, without counting Aakash, there have been 5 acquisitions by Byju’s, totalling over $650M. Byju’s recently closed the acquisition of WhiteHat Jr. for $300M. WhiteHat Jr. is an online EdTech firm in Mumbai that specialises in offering coding lessons, and certificates to young students.

Global Expansion: Previously, Osmo was bought out for $120M by Byju’s to accelerate its global expansion dreams by tapping into the niche physical + digital education market for pre-schoolers. It was part of their market penetration strategy; be niche, build vertically, expand across different demographics like the U.S, UK, Indonesia, and Nepal with their product’s proven value proposition and for getting a feel of what digital education customers are like in America and other countries.

However, the most strategic of all the alliances till then, according to me, is the partnership with Disney that Byju’s signed to build learning content integrating Disney’s most iconic characters to form a stronger footprint for younger audiences.

Securing Disney’s hand as the world’s first EdTech investment to package digital education in entertaining methods is a sure-fire way to create goodwill and trust by creating a roadmap for positioning Byju’s in the developed markets where Disney already captivates youngsters.

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Byju’s is an unconventional start-up looking for acquisitions that are strategic for inorganic growth, integration, and taming competition.

The big one – The bullish effects of Aakash acquisition by Byju’s

Byju Raveendran had said earlier that he wanted to go public with the IPO at some point. Aakash which almost went public once, has reasonable scale, is a recognized brand in India, and is profitable with over Rs 1,200 crore in revenue and its acquisition would help Byju’s go public successfully in addition to scaling up the business.

“As 12 months of the pandemic have shown, there’s a clear need to disrupt education by combining offline with online, which has low single-digit penetration,” said Byju Raveendran. “The future of learning is hybrid, and bringing students to a nearby offline centre provides rigour, intensity and human touch,” he said while announcing the acquisition. The roadmap to the power of omni channel education delivery is the major strategic reason behind this deal.

Blackstone, which invested $184 million in Aakash in 2019, is cashing out partly but remains invested in the merged entity, Aakash’s Managing Director Aakash Chaudhry said. The private equity firm and Aakash’s founders will exit the venture and become minority shareholders of Byju’s, they said in its release.

Aakash Chaudhry said the combined force of Byju’s and Aakash would start targeting the country’s smaller cities, towns and villages. He said the two firms joining forces will offer “very substantial and value-additive services to students.” Aakash will function as a separate entity and the leadership at Aakash Educational will stay with the firm after the acquisition.

Students who wanted to access physical classrooms have gotten that from Aakash and those who wanted to access content and learn online have been served by Byju’s. Together, the combination will be able to leverage the physical location, technology and online learning to offer students a unique experience and value. For several of Byju’s offerings such as test preparation, Byju Raveendran said, an online-only model is still a few years away.

Amit Dixit, co-head of Asia Acquisitions and head of India Private Equity at Blackstone, said that an “omni channel will be the winning model in test prep and tutoring, and we look forward to being a part of the partnership between the two foremost companies in Indian supplementary education – Aakash and Byju’s.”

Byju Raveendran said his start-up is looking to acquire more firms. It was reported that Byju’s is in talks with California-headquartered start-up Epic to acquire the U.S. start-up for “significantly more than $300 million.”

Jayanth Kolla, chief analyst at consultancy firm Convergence Catalyst, said the acquisition of Aakash will help Byju’s gain more brand recognition and reach more students in more areas in India and more geographies. “Growing fast organically on the web still plateaus after a certain point in a market like India,” he said.

This sounds absolutely true at least for Indian market for some more time but their ambition to penetrate the developed market would be a different ball game where online can be a better winner.

The future of merged bigger Byju’s

Byju Raveendran’s relentless motivation and passion to improve the quality of education across India and the globe gives him the ideological energy to surpass all EdTech companies in his quest to change the way education is delivered. Becoming an iconic company for him is about changing the lives of billions of learners.

The marriage of two leaders in their respective space, online and offline, and synergy of strong leadership would go a long way in bringing more successes for the new Byju’s. This will also help bring more innovative methods and quality of content for the students from K-12 grade to those aspiring for admission for graduate programmes in premier engineering, medical and business schools.

To conclude, Byju’s’s acquisition of Aakash is a very strategic move toward a forward integration and as well as creating an offline-online omni channel educational services delivery. It is forward integration because Byju’s is now majorly a player in the K-12 grade segment whereas Aakash is in the post – K-12 space. The merger can create a scaling up model where Byju’s will feed Aakash with Byju’s students for the post – K-12 level entrance coaching. Most importantly, the power of omni channels to cater to small cities and towns the way the students in those places would like to receive their coaching.

Joseph Varughese
Joseph Varughese
Joseph has 22 years of finance experience, 13 years in technology and 6 years as an entrepreneur. He writes on business life cycle, startup ecosystem and entrepreneurship.

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