Edtech giant Byju’s on Monday said that it is acquiring Blackstone-backed Aakash Educational Services. The acquisition, which comes in the form of a cash-and-stock deal, is reportedly worth nearly $1 billion, making it the biggest in the edtech space.

Commenting on the deal, Byju Raveendran, founder and CEO of Byju’s, said the acquisition would help both the organisations to build capabilities and would strengthen their learning programmes. “I am happy to have Aakash Educational Services Limited (AESL), a market leader and the most trusted name in the test prep services, on board with us. Our complementary strengths will enable us to build capabilities, create engaging and personalised learning programmes. The future of learning is hybrid and this union will bring together the best of offline and online learning, as we combine our expertise to create impactful experiences for students,” he said in a statement.

After the completion of the deal, according to reports, the Blackstone Group and the founders of AESL—J.C. Chaudhry and Aakash Chaudhry—will hold a minority stake in Byju’s.

“We invested in AESL because it is one of the leading education brands in India with a professional management team, best-in-class corporate governance, and a 33-year track record of exceptional results. We have always believed omni-channel 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. The combination is highly synergistic and we are excited to help build India’s largest education company,” said Amit Dixit, co-Head of Asia Acquisitions and Head of India Private Equity at Blackstone.

AESL is one of India’s foremost players in the brick-and-mortar test prep space and boasts of having upwards of 200 coaching centres across the country.

Potential implications

India’s edtech industry, of late, has become fiercely competitive, especially with the entry of e-commerce behemoth Amazon into the space. Experts argue that the industry, although still in its nascent stage, is slowly moving towards a position of consolidation. “The edtech industry is one of those rare instances where consolidation has started to happen, and that too very soon, before the space has even fully matured,” says Harminder Sahni, founder and managing director, Wazir Advisors. Sahni adds that Byju’s, which started its journey as a brick-and-mortar coaching centre only to morph into a digital offering, understands the importance of physical coaching centres only too well. “Much like you have the omni-channel phenomenon in the retail space, where e-commerce companies have realised that only digital offerings won’t work, and that they need a combination of both online and offline, similar is the case with edtech too. This deal reflects the reality of the omni-channel model,” he says.

Sahni also argues that the nature of the consolidation in the edtech industry has become such that it is slowly becoming a winner-takes-all market. “Look, edtech is in this peculiar situation where a lot of money from venture capitalists have flowed into very few firms; it is not evenly distributed. So the push from the investors is naturally to consolidate in favour of the few big organisations,” he points out.

Ankur Bisen, senior vice president, retail and consumer products, Technopak, doesn’t agree. According to him, India’s coaching centres are too many, too diverse, and very hyperlocal. “In the test prep space, which is by far the largest segment there is—dominated by engineering, medical science, and civil service exams—India has a phenomenon of coaching centre clusters. So Agra is one cluster, Varanasi is one, Nagpur is another. Then you have innumerable such centres dotting every nook and cranny of this country, and these are all cash-rich enterprises. So ideally, a winner-takes-all scenario is very difficult to attain. It is like big e-commerce firms competing with your mom-and-pop grocery stores. The informal setup may suffer, but not too much,” Bisen says.

Bisen points out that the Byju’s-Aakash deal needs to be seen in the overall context of the test prep space in general. “Today, the edtech industry has largely two arms: test prep and skill development. Byju’s buying of Mumbai-based edtech startup WhiteHat Jr for $300 million last year was a deal in the latter category. But test prep is a bigger market. So not just Byju’s, but Aakash Educational Services was also looking to expand into newer markets, while the former wanted a share of the test prep space.”

Bisen says that the edtech space was always technology dependent. Now with the pandemic, and the uncertainty arising from it, it could hasten the process of digitalisation among traditional players in the test prep space. Such a scenario should ideally put a company like Byju’s in an advantageous position. But the reality is quite different. “The bigger a player, the more cost prohibitive it becomes for the consumer,” says Bisen. “And today, offering an online class has become easy, because of availability of software like Zoom, etc. So a traditional test prep centre is not really threatened.”

Byju’s challenge is of a different nature. “Byju’s, on the virtue of its stupendous funding, requires growth and scale. But the same growth and scale cannot be found in the edtech domain. So it is in a curious position. It wants to grow, but is made to defend its existing market share, rather than increasing it. Aakash gives Byju’s that avenue. But how far it keeps finding such avenues, only time will tell,” he says.

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