‘Think & Learn Private Limited (BYJU’S) acquisition of 70% of equity shareholding on a diluted basis of Aakash educational services Limited (AESL), followed by a merger between the two enterprises. Therefore, BYJU’s to acquire full control over AESL’.[1]

Year of the deal: 2021

Master Data of the companies[2]

1. Why do this merger or acquisition?

Due to the ongoing pandemic, businesses with an online presence have boomed rapidly. From acquiring the product to availing services, people prefer to go online for all their needs. The education sector was also experiencing a boom in the Ed-technology segment. Where parents preferred an online mode of study as the safest option for their children. Therefore, any business with an online presence started to grow at a lightning speed in early 2020. AESL, who was providing offline and online coaching services along with various courses for k-12 students and BYJU’s who had a huge student subscriber and user base, decided to shake hands together to take advantage of combined synergies. BYJU’s has not stopped with the single acquisition but has concluded 7 acquisitions in 2021 and its vision itself to be a top Ed-tech provider. Therefore, I have decided to choose this M&A transaction due to its relevance to the present situation.

2. Objective/ purpose for such M&A for both the legal entities involved.

Combined Objective/ purpose for such M&A for both the legal entities involved.

• To provide an omni-channel platform for students to take advantage of the hybrid model.
• To reduce existing competition in the coaching industry and Ed-tech sector in India.
• To provide value-added services.

3. Synergy

The purpose of any Merger & acquisition is to gain synergies from each other.

Type of synergies

• Cost-saving synergy

The cost-saving synergies aim to reduce the cost of the individual entities by coming together. It includes cost-saving by sharing information technology, IPR, research and development.

In the present case, after the M&A parties are enjoying the synergy of cost-saving with regards to the sharing of the technical know-how of BYJU’s with AESL expert faculty and brand value which will attract more students on board.

• Revenue and market synergies

This synergy measures the growth in sales of the combined entity. It includes an advantage from increased market gain. The present M&A captures less than 10% of the market shares in the present industry.[4] Being a private company, BYJU’s increase in revenue after the deal is unavailable. But the transaction had led to the value addition by increasing the choice of the student to opt for either online, offline or hybrid mode, while students have access to test preparatory services for medical, engineering, other foundation level exam with a blend of classroom learning program for student seeking personalised attention and Distance learning program for student seeking to study at own pace. Both the entities have been able to bring synergy by bringing out interactive and engaging video lessons with an aim to build India’s largest educational company.

• Financial synergies

It shows the Financial advantage by merging, which is measured by cheaper access to finance, reduced cost of equity, Tax benefit. Through this M&A AESL taps the 80 million subscriber base of BYJU’s further the two companies are among the market leader in their own niche i.e., AESL have an excellent reputation in Medical, IIT-JEE coaching and whereas BYJU’s is famous for its ED-tech and online learning program. Therefore both the entities could take the benefit of combination by getting a wider consumer base with expert faculty and brand value which can increase in cash flow.[5]

4. Major Due Diligence

“Shardul Amarchand Mangaldas & Co. advised BYJU’S to acquire 100% shares of AESL. This deal is valued at approximately USD 1 billion. The Due Diligence Team was led by Roshan Thomas, Partner; Arjun K. Perikal, Partner; Mukul Baveja, Partner; Leoni Mahanta, Principal Associate; Pranav Raju, Senior Associate; Apoorva Murali, Senior Associate; Akshita Alok, Senior Associate; and Rachna Chhabria, Associate”.[6]

Following are the Activities involved in Due diligence.[7]

1. Prepare DD checklist
2. To overview the target company
3. Examine whether the target company will strategically fit with the buyer
4. Analysis of the competitive environment of the target company
5. Analysing the financial overview and future projection
6. Conduct intellectual property DD
7. Legal DD
8. Environmental DD
9. Understand the company’s target base
10. Review insurance policies of target company’s business
11. Review extent of related party transaction
12. Review general corporate matter
13. Review properties of the target company

Target Company Overview

While doing the review of the target company, one needs to understand why the owners of the company are selling the business and hence few questions are to be asked.

1. Why is the owner selling the company?

BYJU’s have an edge in the online education service sector with and 5.5 million paid subscribers and due to the pandemic, the government has not allowed the coaching institute to run offline classes, which comes as a major setback in the revenue of AESL as it is majorly operating in brick-and-mortar setup. Therefore, the Owner of AESL decides to sell the company to gain from the combined synergies.

2. Have there been efforts to sell the company before?

No

3. What are the business plan and long-term strategic goals of the company?

The long-term strategic goal of the company is to provide omni channel test preparation and coaching services through the hybrid of online and offline classroom experience.

4. Has the company recently acquired or merged with other companies?

No

5. What is the geographical structure of the company?

The target company is spread across pan India with more than 215 study centres.

Strategic Fit with Buyer

The buyer has to understand the extent to which the company will fit strategically within the larger buyer’s organization. Related question is, Does the company provide products, services, or technology the buyer doesn’t have?

Buyers do provide a similar set of services, i.e. test preparation, coaching for various foundation exams. The buyer in the present case does not have the expert faculty and offline presence which the ASEL have in the present case.

Competitive Landscape

The buyer should do due diligence to understand the competitive environment in which the target company’s business operates, including by obtaining information on the company’s principal current and anticipated competitors

Target company’s principal competitor is FITJEE, which also provides coaching for IIT-JEE. Further, many medium-sized coaching institutes are there to provide similar services such as ALLEN Institute, Career Point, Vibrant academy, etc.

Financial Overview.

The main focus is on making sure that the financial information which has been provided is correct and honest. Examining historical financial statements and related financial metrics with future projections is key.

Target company AESL has shown more than 1200- crores in turnover and has been valued at up to 1 billion dollars in valuation. [8]

Legal Due Diligence.

This may involve a review of contracts (customer, supply, operating and employee contracts and licenses), Leases, Pending and potential lawsuits, etc

Following are a few of the settled litigation of the target company.

• Prashant Gautam Vs Aakash Educational Services Pvt. Ltd.[9]
• Aakash Educational Services Pvt. Ltd. Vs Nitin Jain and Others.[10]
• Aakash Educational Services Pvt. Ltd. Nishchal Khetan[11]

5. Valuation

There are a few methods to value a company’s worth such as:-

• Income Approach
• Asset Approach
• Market Approach

• BYJU’s consolidated loss reached ₹ 262 crores in 2019-2020, further its operating revenue rose to ₹ 2381 crores while expenses increased by 119% the company was valued at $16.5 billion after raising about $150 million from UBS Group AG.[12]
• AESL: In FY19, the total income of AESL rose to Rs 1,140.6 crore while profit was Rs 196.92 crore as per its MCA filings. For FY20, the profit was at Rs 164.68 crore as per filings with the MCA and total income stood at Rs 1,261.4 crore.[13] BYJU’s acquired AESL for $950 million. Therefore, AESL is valued at $950 million.

6. How the M&A deal happened:

BYJU’s started to talk about possibilities of combination with AESL in June 2020 which later converted into an acquisition in October and later BYJU’s acquired AESL after getting CCI node on June 2021.[14]

Process of acquisition as given under CCI order dated 7^th June 2021

Step 1: BYJU’s to acquire equity shareholding of AESL from the co-founder and Chief financial officer and Blackstone.

Step 2: As per the CCI order dated 7^th June 2021, both parties had filed the scheme of amalgamation with NCLT.

Step 3: Mr J. C. Chaudhary, Mr Hemant Sultania, Mr Pavan Chauhan and Blackstone Entities shall receive a few shares in BYJU’s as a part of the consideration.[15]

Step 4: In case of failure in the merger, as per the fall-back agreement BYJU’s shall acquire 100% of shares in AESL as Mr. J. C. Chaudhary, Mr. Pavan Chauhan, Mr. Hemant Sultania, and Blackstone Entities will compulsorily have to swap their Shares in AESL with shares of BYJU’s.

What were the documents signed?

Following documents were signed and executed on 3^rd April 2021.[16]

• Term sheet
• Merger Framework Agreement,
• Share purchase agreements
• Fall back agreements

Was there any regulatory intervention/ approval?

Notice to CCI: The parties jointly provided the notice to CCI on 20^th of April 2021 as per sub-section (2) of Section 6 of the competition act.

CCI observation:

Relevant geographic market: CCI held the parties Geographic market to be all India as their services are accessed throughout the country by students.

Relevant product market: CCI delineated the Product market to be a non-formal education sector, which includes (a) coaching services for medical, engineering examinations;(b) curriculum-based classroom coaching for the k-12 group.

Final observation CCI while considering whether the proposed combination can lead to Appreciable Adverse Effects on Competition (AAEC) considered the combined market share of the proposed transaction to be even less than 10%: Further, it evaluates the presence of steep competition in the Ed-tech and non-formal education segment in India, due to presence of several players such as FITJEE, Khan academy, Vedantu, Udemy, Unacademy etc therefore the present combination is not effecting the existing competition in the market.

Finally, the CCI approved the proposed combination under section 31(1) of the competition act as the Proposed combination is not likely to cause AAEC in the relevant market. Therefore, the combination was registered to vide No. C-2021/04/831

7. Success or failure of the above M&A deal

It’s been only a few months after the CCI has approved the combination in June 2021 and in my opinion, this is too early to decide whether this deal was a success or a failure. Though it is not hidden that BYJU’s is incurring a lot of losses due to its extravagant investment in marketing, investing in offline spaces, BYJU’s is trying to enter tier 2-3 cities through extensive investment. Further, it is raising funds to acquire more ed-tech companies and expanding its presence overseas by acquiring a US-based coding platform.[17] Thus, the picture will get clear in the coming days whether this deal was a success or a failure but in my opinion, this deal is a success as BYJU’s gets to enter the offline non-formal coaching market with the ready infrastructure of AESL, while AESL manages to survive the losses due to closure of offline coaching centre and manages to provide its services through online mode and utilise BYJU’s huge subscriber base of 5.5 million user which is ever-growing. The result of these fruits will bear in the future, as the future is in the Hybrid model of Education. Though acquiring price of $950 million was extra for acquiring an offline coaching institute.

Integration post-M&A.

Post integration, AESL has been using a new logo and indicating its benefit derived from the M&A in its website i.e. ‘Technology-based learning solutions, Visually rich content to enable conceptual clarity & lifelong term retention, More accessible & personalised practice & testing, Interactive & engaging video lessons’.[18] BYJU’s offering various products combing with AESL such as Aakash BYJU’S Live – Online Classes for Repeaters, NEET 2022, Hindi + English Regular-priced Rs. 95,000.00.[19]

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[1] CCI order dated 7^th June 2021

[2] Company master data <Home (mca.gov.in)> accessed 5 December 2021

[3] YouTube video < https://youtu.be/xxTxoiWnOTs> accessed 5 December 2021

[4] CCI order dated 7^th June 2021 para 12

[5] Byju’s being private company its financial statement is not available for the year 2021 further AESL’s financial statement is also not available for the year 2021.

[6] <Shardul Amarchand Mangaldas & Co. advises Think & Learn Private Limited (“BYJU’S”) to acquire 100% shares of Aakash Educational Services Limited (“Aakash”) – Shardul Amarchand Mangaldas & Co (amsshardul.com)> accessed 5 December 2021 | https://www.amsshardul.com/shardul-amarchand-mangaldas-co-advises-think-learn-private-limited-byjus-to-acquire-100-shares-of-aakash-educational-services-limited-aakash/

[7] Mergers and Acquisitions, PPT Module 2, Activities involved in Due diligence

[8]<Small-town Dreams To $1 Billion Valuation: How Aakash Educational Services Grew Wings (moneycontrol.com)> accessed 5 December 2021 | https://www.moneycontrol.com/news/business/companies/small-town-dreams-to-1-billion-valuation-how-aakash-educational-services-grew-wings-6340851.html

[9] 2021 SCC OnLine Del 4166

[10] (2021) 278 DLT 630

[11] 2019 SCC OnLine Raj 6797

[12] <Byju’s Acquires Aakash Educational Services (moneycontrol.com)> accessed 5 December 2021 | https://www.moneycontrol.com/news/business/byjus-acquires-aakash-educational-services-6731711.html

[13] <Small-town Dreams To $1 Billion Valuation: How Aakash Educational Services Grew Wings (moneycontrol.com)> accessed 5 December 2021 | https://www.moneycontrol.com/news/business/companies/small-town-dreams-to-1-billion-valuation-how-aakash-educational-services-grew-wings-6340851.html

[14] < Aakash institute acquired by BYJU’s: Ed-tech acquisition case analysis – iPleaders> accessed 5 December 2021 | https://blog.ipleaders.in/akash-acquired-byjus-ed-tech-case-analysis/

[15] CCI order dated 7^th June 2021

[16] ibid

[17] <Inside Byju’s Deal Machine—the Strategy, Approach And Learning (moneycontrol.com) > accessed 5 December 2021 | https://www.moneycontrol.com/news/business/inside-byjus-deal-machine-the-strategy-approach-and-learning-7356301.html

[18]< Coaching Classes for NEET/ Medical, IIT JEE Main & Advanced and Olympiads – AESL | AESL (aakash.ac.in)> accessed 5 December 2021 | https://www.aakash.ac.in/

[19] <Aakash BYJU’S Live – Online Classes for Repeaters, NEET 2022, Hindi + – BYJU’S Products (byjus.com)> accessed 5 December 2021 https://shop.byjus.com/products/byjus-classes-for-repeaters-neet-2022-english-hindi