SoftBank-backed Unacademy explores merger with Byju’s-owned Aakash

SoftBank-backed Unacademy is in talks for a potential merger with Byju’s-owned Aakash, three people familiar with the development said, portending a significant shakeup involving two of India’s most-valued edtech companies.

The deal, if it happens, will be a mix of cash and stock, with the merged entity exploring an IPO (initial public offering) instead of Aakash alone seeking a public listing, as is being contemplated now by Byju’s, the sources said.

The discussions are at an early stage and a transaction may not materialise but events have moved far enough for talks to take place over the last month between Byju’s founder Byju Raveendran and Unacademy founder Gaurav Munjal, Moneycontrol has learnt.

One of the persons cited above said only conversations have started and these haven’t reached a term sheet stage yet, while a second person cited above said common investors in both companies were keen to see a merger through, as the combined entity may present a more compelling case for a potential PO, creating a liquidity event for them. A term sheet is a nonbinding agreement that outlines terms and conditions for a potential investment.

While Munjal is expected to run the merged entity, Byju may get a board seat, the sources said.

Aakash and Byju’s flatly denied the merger talks. Unacademy declined to comment.

In emailed responses to Moneycontrol, a spokesperson for Byju's said,"We strongly deny that Byju's is considering a merger of Unacademy into Aakash Educational Services. As a parent company, Byju's is committed to investing in the growth of Aakash Educational Services, which is growing at more than 50 percent year-on-year."

Meanwhile, a spokesperson for Aakash said, "We have had absolutely no discussions with Unacademy or any other player to merge with Aakash Educational Services. Aakash is a market leader in our segment with an impeccable track record of delivery and results and we are focused on our organic growth and delivery to the lakhs of students that have trusted us."

The two Bengaluru-based startups are rivals in the hyper-competitive edtech space, but they are backed by a bevy of common investors, among them General Atlantic, Tiger Global and Sequoia Capital. With new funding hard to come by but new rivals such as Noida-based PhysicsWallah gaining ground, a merger involving strong elements from their portfolio would allow investors to give Byju’s and Unacademy a better chance of fending off competition.

While Byju’s raised its last equity funding round in October 2022 at a flat $22 billion valuation, Unacademy last raised $440 million in August 2021, at a valuation of $3.4 billion. To date, Unacademy has raised more than $870 million to date, Byju’s has raised over $5 billion.

The potential merger comes even as Byju’s is in talks with bankers to list Aakash on the public bourses in India and is aiming for a valuation of $3-4 billion. Aakash had a revenue of around Rs 1,400 crore in FY22 (2021-22) and is expected to cross the Rs 2,500 crore mark this year, according to sources, and a $3 billion valuation will give it a 10x revenue multiple.

“It will be very hard for Aakash to list at a 10x multiple in this market, especially considering that it is not a digital-first business,” said one of the people quoted above.

“A potential merger with Unacademy would give it another Rs 1,400-1,500 crore of revenue. While it will also mean that Aakash will bring huge losses of Unacademy on its books, they might be able to figure out a way to navigate that by leveraging capabilities,” the person added.

If the deal goes through, Unacademy and Aakash will create one of the biggest coaching companies in India, having strong footholds in both offline and online test preparation segments. Currently, Unacademy has about 50 million active learners while Aakash has a student count of more than 2,50,000 across its 200 centers in India.

The merger deliberations come at a time when Byju’s is facing a liquidity crunch as its fundraising plans have gotten delayed due to a prolonged due diligence process according to a Bloomberg report. A part of this deal, about $100 million, will be in cash, which will help Byju’s, which is currently the world’s most-valued edtech startup, to tide over the immediate need for money, people quoted above said.

Byju’s acquired Aakash Educational Services in April 2021 just before the second wave of Covid swamped India, shutting schools, colleges and physical tuition centers, which had just started reopening after the first wave. Byju’s had agreed to pay $950 million for the stock and cash deal.

Since then, Aakash is learnt to have grown about 50 percent in FY22 (2021-22) and is expected to grow another 50 percent this year. In November last year, Moneycontrol reported that Byju’s was looking to publicly list Aakash in India at 3x of its last known valuation. Earlier this month, a report by Bloomberg suggested that Byju’s was seeking to raise as much as $250 million through the issuance of convertible notes by Aakash Educational Services.