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Edtech Startup Byju's Set to Acquire Aakash Educational Services for $1bn

Editor, TRANSFIN.
Jan 14, 2021 11:15 AM 4 min read
Editorial

Edtech giant Byju's is reportedly all set to acquire coaching centre chain Aakash Educational Services for $1bn.

The deal, which could close in the next two or three months, would be one of the largest in the edtech space. And it would combine Byju’s digital prowess with the brick and mortar presence of Aakash, allowing the former to scale up considerably.

 

Edtech On a Roll

The Byju’s-Aakash deal also signals a promising start to 2021 for Indian edtech. The sector had a stellar 2020 as over 320 million students were forced to adapt to online education since schools and colleges were shut for the better part of the year.

While educational institutes have slowly begun reopening, parents and students remain hesitant, with most of them preferring to continue the study-from-home experiment. Moreover, mass inoculations against COVID-19 will be a lengthy and complicated process. As such, demand for edtech platforms is expected to remain healthy in the near-term. The sector may be headed for 8x to 10x growth in the next five years.

One factor that works in edtech’s favour is how dynamic it is - it covers the usual K-12, college and competitive exam syllabus in addition to imparting skill education on a myriad of topics such as coding, AI, machine learning etc. As such, the sector’s consumers include everyone from primary school children to working professionals.

The digital education craze has been recognised by the Government - the National Education Policy called for optimising and expanding online education initiatives - and by non-edtech companies too. Paytm, which had previously purchased edtech startup Edukart, launched Paytm Education to offer a slew of education-related payment services. Amazon launched an IIT-JEE test preparation app named JEE Ready. Only today, “Amazon Academy” was launched in India, a platform to help students prepare for competitive exams.

Investors have been paying attention. VC firms pumped in $1.8bn into Indian edtech startups through 2020 across 60 deals, propelling edtech to become the most-funded sector in 2020. 

 

Who Rules the Roost?

The lion’s share of these investments went to Byju’s, which has become the world’s most-valued edtech startup. Backed by the likes of the Chan Zuckerberg Initiative, Tiger Global Management, Sequoia, Tencent, General Atlantic, Qatar Investment Authority and Bond Capital, the Bengaluru-headquartered firm has seen its valuation soar to $12bn, clinched profitability, and there is now talk of taking the company public.

Acquiring Aakash would add to the growing list of strategic deals Byju’s has been pursuing over the past year as it seeks to cement its position in the sector. In August, it bought Mumbai-based WhiteHat Jr, which teaches coding to children, for $300m. A month later, the decacorn acquired lab-like virtual simulation platform LabInApp for an undisclosed amount.

Aakash Educational Services, which is backed by the Blackstone Group, has over 200 centres across the country and tutors 250,000+ students to gain entry into engineering and medical courses.

Byju’s says it is already used by more than 70 million users from over 1,700 cities across the country. Of these, over 4.5 million are paid users. Scaling up operations will be indispensable for Byju’s as it targets doubling its revenues to $1bn via the acquisition in an attempt to justify its $12bn valuation implying a lofty 12x P/S. Typically, when organic growth starts to ease, acquisitions enter increasingly into the picture to demonstrate growth (and not to mention heightened optimism around “synergies” to paint a pleasing profitability outlook) and keep the party going! 

 

Is Edtech a Bubble?

All said and done, while the edtech sector may have generated a lot of hype and capital, the fact remains that there are only so many educational apps a person can have on their phones.

Some investors opine the sector has become a bubble and will face a reckoning sooner or later. Anirudh Damani, managing partner of VC firm Artha Venture Fund, told KrASIA, “There has been too much investment in edtech… For the new edtech startups that are coming up, differences are incremental and not that deep anymore.”

Damani expects a major “shake up” in the segment next year when there will be mergers and acquisitions (Byju’s-Aakash is perhaps a textbook case-in-point), while a lot of companies will die down because they are not building anything that is significantly different. “Eventually, there will be two or three winners in every category, and everyone else will die down.” And Byju’s is clearly in pole position to be that big winner, tucking in assets across the spectrum.

The sector also confronts several systemic and infrastructural challenges. These include the complicated maze of education-related regulation, lack of uniform e-learning legislation, untapped investment potential, and patchy and slow internet connectivity, particularly in the hinterland - in small towns and villages, where the bulk of the country’s population lives. More on these challenges here.

On a broader level, will the digital adoption that was compelled upon the education sector by the pandemic prove to be lasting? Have we yet reached a stage where technology can definitively replace brick and mortar schools and colleges? Especially in a country like India, where not every household has reliable internet connectivity or apparatus like laptops, speakers, earphones or relevant softwares? Moreover, can online videos ever truly  replace in-person interactions with teachers and classmates, which are crucial for children’s all-round growth and development?

The answers to the above questions are debatable, but they will define the future trajectory of edtech in India - a bubble that will burst or the next big thing?

FIN.

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