Rational or Madness: Edtech Acquisition Spree

EdTech Companies seem to be on spree for expanding their operations through acquisitions. EdTech was one of the biggest beneficiaries of digitalisation and work-from-home. With the digital revolution, EdTech changed its dynamics which was coupled with covid-19 crisis. All these paved the way for proliferation of EdTechs in India and with an increasing number M&A transactions picked up in EdTech Sectors. In this article, we have discussed the latest M&As in the EdTech sectors and the way forward. We list below some of the recent acquisitions in the sector

PhysicsWallah acquires PrepOnline and Altis Vortex

EdTech unicorn PhysicsWallah announced the acquisition of test preparation edtech company PrepOnline and book publisher Altis Vortex for an undisclosed amount in a mix of cash and stock deal.

The acquisition of PrepOnline will help PhysicsWallah (PW) foray into online competitive exam preparation segment and acquisition of Altis Vortex marks its entry into book publishing domain.

PrepOnline focusses on preparation for NEET, Board Exams, and state-level government exams while Altis Vortex is publisher of NCERT-based books for class 11, 12, NEET and CUET-UG Exam preparations.

PW has roped in 35 employees from PrepOnline, of which 18 are adept teachers with around 8-10 years of experience, to enhance its teaching infrastructure. PrepOnline has a paid user base of 42,000.

Vivek Gaur, founder of PrepOnline has joined PW as Chief of Growth and Kumar as Chief of Projects. The new partners will also support PW in other domains, including retail marketing, e-commerce sales, and printing, the statement said.

Vedantu to take majority stake in Deeksha for $40 million

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The online learning platform Vedantu bought a majority stake in Ace Creative Learning Pvt. Ltd, commonly known as Deeksha in a deal that closed at $40 million. Deeksha, which is Karnataka’s leading test preparation platform for board and competitive exam coaching for students in grades 11 and 12 will bring close to 13,000 of its students to Vedantu’s platform and will leverage Vedantu’s strong credentials in LIVE classes, educational technology, and pedagogical content.

Since 1998, Deeksha has created over 65,000 success stories through its 39 centers in three states. The goal of this collaboration is to use Vedantu’s technology and integrate it into offline centres to create a scalable hybrid model that provides affordable access to quality teaching even in remote Tier 3 and Tier 4 towns.

Through collaboration with schools and colleges, this initiative will strengthen Deeksha’s pioneered learning model, which specializes in competitive exam prep in tandem with board exam prep.

“Together Vedantu and Deeksha will revolutionize the way education is imparted, improve the quality of the learning system as a whole, and help students to achieve their true potential with outstanding learning outcomes,” the company said in a press release.

Veranda Learning arm to acquire JK Shah Classes for ₹337.82 crore

Veranda Learning Solutions Limited has announced that it has signed a definitive agreement for the acquisition of equity shares of J. K. Shah Education Pvt Ltd through its wholly-owned subsidiary, Veranda XL Learning Solutions Pvt Ltd

The said transaction will be completed in two phases, with the first phase seeing the payment of 76% of the outstanding capital together for ₹337.82 crore. The entire transaction will be funded through a combination of Debt and Equity, Veranda Learning Solutions Limited said in a regulatory filing.

J. K. Shah Classes has been a pioneer in coaching the CA, CS, and CMA aspirants in India for the last 39 years and is one of the largest test-prep organisations in India. It currently operates through 75 centres located across 39 Indian cities and is headquartered in Mumbai.

Professor J. K. Shah will continue to remain as Chairman for Life on the board and will guide the growth and strategy of the company.

At the same time, Veranda Learning Solutions Limited announced that it has terminated the Share Purchase Agreement to acquire T.I.M.E (Advanced Educational Activities Pvt Ltd) a Hyderabad-based Company for a consideration of INR 287 crore. The 100% acquisition of Hyderabad-based T.I.M.E. was scheduled in two phases first being 80% and remaining in after end of two years.

Valuations

*: Vedantu Deeksha: Vedantu acquires test prep platform Deeksha for $40 million – The Economic Times (indiatimes.com)

**: In September 2021

***: For FY2021.

Clearly, Veranda looking to acquire companies which have more revenue than the consolidated revenue of Veranda. The acquisitions are funded through cash rather than issuing equity. Further, the valuation matrix assigned to the deals were much lower than the current valuation multiple Veranda is fetching.

Aakash eyes for an IPO (Initial Public Offer)

Edtech giant Byju’s is in talks with bankers to publicly list its offline coaching unit Aakash Educational Services in the beginning of 2023.

The Bengaluru-based firm is looking to raise $800 million to $1 billion in the initial public offering (IPO) of Aakash at a valuation of over $3.5 billion

In April last year, Byju’s had acquired then Blackstone-backed Aakash in a cash-and-stock deal for close to $1 billion. The deal stands as one of the biggest acquisitions by the company so far. 

Conclusion

Exam preparations seems to be the flavour of the season in EdTech Sector. From the recent past acquisitions, it seems Edtech Companies are focusing on bolt-on acquisitions which shall help them in catering wide verticals starting for K-12 to training for specialised courses/degrees though the opportunity of cross-selling needs to be ascertained.

Interestingly, most of the acquisitions are happening for cash consideration instead of equity. One of the reasons could be valuation multiple gaps between acquirer & acquiree. When any business acquisition is valued at 5 times of revenue, the said business needs to earn PAT (Profit After Tax) equal to revenue at the time of acquisition to get at least 20% ROCE in the future.

Clearly, EdTech in India is going through a sea change which is providing increasing M&A opportunities for large companies. Only time will tell which companies successfully integrates the acquisition and create value for stakeholders.