Byju’s acquired Aakash Edu Services for nearly $1 bn over a Zoom call

As managing director of Aakash Educational Services Limited (AESL), Aakash Chaudhry’s role is to manage the overall operations of the brick-and-mortar test prep leader. Now the country’s $180-billion education sector has gone online to adapt to the new reality. Chaudhry may not have imagined that one day he would also have to do an acquisition deal online. This is because ed-tech decacorn Byju’s has closed the deal to acquire AESL for nearly $1 billion. And Chaudhry and Byju’s founder and chief executive Byju Raveendran negotiated with each other and closed the deal over the video-conferencing platform Zoom. The stock-and-cash deal is the biggest in the education space, said sources.

“We closed the biggest deal online. The world has changed and moved significantly ahead (after) 2019,” said Chaudhry. “This (deal) is coming together of best of offline and online.”

This partnership brings together two of the largest education brands in India -combining Aakash’s pedagogy expertise in the test-prep segment with Byju’s content and tech capabilities. After the integration, Byju’s will make further investments to accelerate Aakash’s growth. The acquisition would also help Byju’s to further dominate the market and increase its lead over its competitors such as SoftBank-backed Unacademy, Vedantu and traditional education institutes.

With over 33 years of experience, Aakash said it has built a highly effective learning ecosystem that has helped millions of young aspirants get into the country’s best institutions. In 2019, AESL had partnered with private equity firm Blackstone to create India’s largest digitally enabled, omnichannel test preparation company. Under the leadership of Founder JC Chaudhry and Aakash Chaudhry, it will continue to function independently.

“We feel that we have to grow and reach more students. Rather than fighting it out on a battleground, we (felt) we should join forces and create a bigger impact sooner than we would have been able to do it alone,” said Chaudhry. “Businesses for entrepreneurs are like babies and giving away a baby is not an easy decision. After interacting with Byju (Raveendran), we got a sense that it (Aakash) is going into safe hands.”

With over 215 centres and a student count of more than 250,000, Aakash provides test preparatory services to students preparing for medical and engineering entrance exams, school and board exams, KVPY, NTSE, Olympiads, and other Foundation level exams. The institute clocks an annual turnover of about Rs 1,200 crore, according to the sources.

Byju’s said the deal is a strategic partnership with AESL. The addition of Aakash is a significant step towards strengthening Byju’s product offering. It reiterates Byju’s focus on creating impactful learning products for students by adding more verticals, subjects, and languages to the same platform.

“The first time I met them (Aakash), I knew that there is a synergy in terms of what each of us can bring onto the table to create a ‘blended mode’,” said Byju’s founder and chief executive Byju Raveendran. “It took 3-4 months for that before we verbally agreed to do the deal and then further took 2.5 months to close the deal. We did almost everything over Zoom.”

Raveendran said the pandemic has brought the importance of the blended format of learning to the forefront. He sees it as a big opportunity in terms of giving more choice to the students, where some part of the learning will happen online and another part would take place in an offline setup based on the student preferences.

In late 2019, private equity firm Blackstone picked up 37.5 per cent stake in Aakash, valuing the company at around $500 million. Now both Aakash founders and Blackstone will also become shareholders in Byju’s, according to sources.

Amit Dixit, co-head of Asia Acquisitions and head of India Private Equity at Blackstone, said that the company invested in AESL as it is one of India’s leading education brands with a professional management team, best-in-class corporate governance and a 33-year track record of exceptional results.

“We have always believed omnichannel 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,” said Dixit. “The combination of Aakash and Byju’s is highly synergistic and we are excited to help build India’s largest education company.”

Accounting and consulting firm EY was the exclusive financial advisor for Byju’s on this transaction. Phoenix Advisors was the exclusive advisor for the AESL.

“This is one of the largest strategic transactions in edtech globally,” said Ajay Shah, partner, investment banking advisory, EY. “EY played a pivotal role in navigating this complex transaction.”

The transaction would help Byju’s to scale up its core business of tapping the K-12 education space, where it is witnessing 100 per cent growth. It would also help it to tap the test preparation space as the ‘pure online model’ would take many years for students to adopt. “When everything is open, a good number of students would rush back to the offline centres,” said Raveendran.

Byju’s which is backed by investors such as Qatar Investment Authority, General Atlantic, Tiger Global, Naspers and Chan Zuckerberg Initiative (CZI), founded by Facebook CEO Mark Zuckerberg and Dr. Priscilla Chan, has raised total funding of $2.3 billion. The Bengaluru-based firm is raising about $700 million from new and existing investors in a fresh funding round and nearing a valuation of about $15 billion from $12 billion at present, according to the sources.

Raveendran said most of the funding that the firm has raised and is about to get from investors would be used for inorganic growth and acquisitions, especially in international markets.

“Our core model and Aakash is a profitable business. But in international markets, we are scaling some of these new models and we are investing,” said Raveendran. “Fundraising is mainly for the acquisitions, three of which we have done in the last 2 years. We see an opportunity to do 1-2 more integrations, which will help us in our international growth.”

Last year in August, Byju’s acquired Mumbai-based ed-tech start-up, WhiteHat Jr, which teaches coding to children for $300 million. The firm has a strong business in the US market. In 2019, Byju’s also bought the US-based educational gaming company, Osmo, for $120 million in a stock-and-cash deal. Byju’s is now in talks to acquire California-based online reading platform Epic, to deepen its footprint in the US market, according to the sources. Epic’s reading platform is built on a collection of over 40,000 popular, high-quality books from more than 250 publishers—with the aim to fuel curiosity and reading confidence for kids 12 and under. The deal values Epic at over $300 million, according to the sources.

Raveendran said from next year, Byju’s would have four business models which include Byju’s core model, Aakash, WhiteHat Jr and Osmo, all doing at least $200 million in revenue. “That’s a lot of levers for growth and also segments,” said Raveendran, who is expecting to cross a revenue significantly higher than $1 billion by next year. “Next year we will accelerate growth further from our 100 per cent growth which we have seen in this year.”

Launched in 2015, Byju’s is the leader in offering personalised learning programs for school students in India. With over 80 million students cumulatively learning from the app, 5.5 million annual paid subscriptions, and an annual renewal rate of 86 per cent, the app creates personalized learning programs for individual students based on their proficiency levels and capabilities which help them learn at their own pace and style. In just 6 months during the lockdown, Byju’s has added 45 million new students to its platform.