White Knight? Ranjan Pai in talks to invest $80-90 million in Byju’s-owned Aakash

Ranjan Pai, Byju's earliest investor in talks to invest in Aakash Educational

Dr Ranjan Pai, chairman of Manipal Group, is in early discussions to invest in Byju’s owned Aakash, emerging as a white knight to help the embattled edtech firm. It also marks a full circle, as Pai was one of Byju’s early investors.

Byju Raveendran who holds a 30 percent stake in Aakash, is expected to partially offload his stake to Pai for $80-90 million, sources said. Raveendran would use the funds to repay about Rs 800 crore to Davidson Kempner after Byju’s had a technical default on the loan it raised in May. Further, he would also look to release the pledge on shares of Aakash, which he had offered as collateral for the Davidson Kempner loan, the people quoted above said.

While Pai had then invested through Aarin Capital, he is expected to invest this time via his family office. Byju's is further seeking another $200 million (Rs 1,600 crore) in Aakash as a part of the funding round and sovereign wealth funds are expected to come on board, the people said requesting anonymity.

Aakash Educational Services, which Byju’s acquired for close to $1 billion in 2021, has been the company’s best-performing acquisition by far. But the due diligence for the deal has not been smooth. About 70 percent of the transaction was supposed to be in cash, while for the rest promoters of Aakash and Blackstone, which held more than 30 percent of the tutoring giant before the acquisition, were supposed to get equity in Byju’s.

But the shareholders of Aakash have been reluctant to execute the share swap, citing Byju’s declining value, according to sources. According to a report by Mint, Blackstone was supposed to get an additional 0.7 to 1 percent stake in Byju’s upon completion of the swap, while Aakash’s promoters would have got 1.5 to 2 percent.

The people quoted above said that as the valuation of Byju’s has taken a beating over the past two years, Blackstone and Aakash promoters are not keen on swapping their shares with Think and Learn, the parent entity of Byju’s.

Davidson Kempner and Pai declined to comment. Byju's did not respond to queries sent by Moneycontrol.

A seasoned entrepreneur and investor, Pai recently gave up a controlling stake in his chain Manipal Hospitals to Singapore’s Temasek, in what was the largest deal ever by a private equity fund in India’s healthcare sector. He also runs the Manipal group of educational institutions.

“It makes sense for Ranjan Pai to invest in Aakash, considering it is a cleaner structure and business model, generates profit and has a clear path to an IPO,” said one of the people quoted above.

“Once Ranjan Pai comes on board, it will be easier for Byju to bring in other investors,” the person added.

If the funding is successful, it will provide much-needed relief to Byju's, which is currently grappling with various challenges, including immediate liquidity constraints due to a prolonged fundraise for its parent company, Think and Learn Pvt.

The move also indicates Raveendran's intention to address his debts while inviting trusted equity investors to join the company's ownership, amidst an ongoing struggle with term loan B creditors based in the US.

Ranjan Pai had first invested in Byju’s in 2011 through his venture capital fund Aarin Capital, acquiring about a third of the company then. Aarin had eventually exited the company with bumper returns over the years, as Byju’s raised over $5 billion over the past decade.

“Ranjan still believes in the Byju’s story and that Byju wants to bring in people whom he trusts,” said a second person in the know.

“Byju has been looking to ring-fence the company from investors who have explored hostile takeover,” the person added.

Back in June, Bloomberg reported that Byju's was in advanced negotiations with potential new investors for a $1 billion fundraising round, aiming to fend off efforts by certain investors seeking to reduce founder Raveendran's control over the startup.

To be sure, Byju's has been actively pursuing a significant fundraising effort since the beginning of the year, but thus far, they have been unable to finalize the funding round, leading the company to implement various cost-cutting measures such as laying off over 2,000 employees, deferring appraisals, and relinquishing office spaces.

In May, it signed a definitive agreement with Davidson Kempner to raise $250 million in structured instruments, linked with future cash flows of Aakash Educational Services.

In May, it signed a definitive agreement with Davidson Kempner to raise $250 million in structured instruments, linked with future cash flows of Aakash Educational Services. But the beleaguered edtech did not meet certain covenants of the agreement, prompting Davidson Kempner to hold back more than half of the amount. According to a report in The Morning Context on July 31, Davidson Kempner has accused Byju’s of financial misconduct. However, the claim could not be independently verified. In the same report, Morning Context also mentioned that Pai was looking to invest about Rs 500-700 crore in Byju's.