How and why did Byju’s pay 1B USD (approx. 7400 crores) for Aakash?

How and why did Byju’s pay 1B USD (approx. 7400 crores) for Aakash?

On 5 April 2021, Byju’s announced the acquisition of 33-year-old Akash Educational Services for 1B dollars (approx. 7400 Crores) which is the highest valued deal in the Edtech sector in the world. It is known that Byju’s paid close to $600 million in cash and the rest in shares of the parent company.

Some vital statistics about Aakash Educational Services

Established: Sep 22, 1988 by Jagdish Chand Chaudhry

Financial snapshot:

2019-20 2018-19 2017-18
Revenue (Rs. In crores) 1261.4 1116.4 972.6
EBITDA (Rs. In crores) 427.4 304.2  265.3
EBITDA Margin 33.8% 27.2% 27.2%

EBITDA means Earnings before interest, tax, depreciation, and amortization. It gives us an excellent idea about the cash flow from the operating activities of a business. It measures a business’s overall financial performance in a particular financial period. Investors are very keen to know the EBITDA and EBITDA margin of companies they are looking to invest in.

Aakash has earned more than 85% of its income each year through direct coaching while the remaining was earned through fees collected from their franchisees all over India.

Major expenses by Aakash during 2019-20:

Aakash incurred expenses of around Rs. 1004.6 crores in the FY 2019-20. Out of which, 52% were for employee benefits. 12.20% of the expenses accounted for depreciation and amortization expenses.

Previous deals by Aakash:

Aakash had also received previous funding of  $180.29M (Rs. 1350 crores) on 30/10/2019 from the Blackstone group based in New York against a valuation of Rs. 3700 crores. Aakash, later on, went on to acquire meritnation.com for Rs. 50 crores on Jan 4, 2020.

Shareholding of Aakash before the Byjus deal:

Jagdish Chand Chaudhry & family members 60.56%
Blackstone 39.32%
Others 0.12%
100%

 

Why did Byju’s decide to buy Akash?

  1. Before the acquisition of Aakash, Byju’s educational services were limited to the online medium. With this acquisition, Byju’s could now explore offline coaching as well using the massive infrastructure of Aakash in India.
  2. According to a recent research report, the ed-sector is expected to grow from $2.8 billion in 2020 to $ 10.4 billion in 2025.
  3. Byju’s found this as a good opportunity to expand into the entrance test-prep sector, which has a great demand in India with students and parents giving enormous importance to applying for, preparing and passing these entrance tests for a solid career.
  4. Aakash has a proven track record of 33 years with a solid management team which has led the company to its growth. With the presence of Aakash in India with 215 exam preparation centres, the high increase in their turnover and EBITDA margin there is no doubt that Aakash holds the majority market share in this sector in India.

How did Byju’s arrive at the price?

  1. The value of 1 Billion USD has been arrived by using a business valuation method called Comparable Companies Multiple Method (CCM Method).
  2. CCM Method takes the valuation ratio (such as Revenue Multiple i.e. Enterprise Value/Revenue) of a listed company and applies that ratio to the company being valued. In other words, this approach assumes that a particular ratio can be applied to various companies operating within the same line of business or industry to arrive at the value of the business.

*Revenue Multiple measures the value of a business as a ratio to the revenue or net sales of the business..

.

  1. The valuation for the funding round of $200 million raised by Byju’s in February 2020 was at a revenue multiple of 41.5X.
  2. Aakash generated a revenue of Rs. 1261.4 crores ($169M) in the FY 2019-20. The valuation of Aakash arrived for this deal was $1B. Hence, we can assume that the revenue multiple used is 5.9X from the below:

   $1 B    = 5.9X (Approx.)

$169M

(1 billion = 1000 millions) (Rs. to dollar conversions as of 27/04/2021)

  1. Byju’s hired Ernst and Young as their financial advisor for this deal and Aakash has been supported by Phoenix Advisors.

To conclude, it is an interesting fact that Aakash had appointed Byju’s ex-President for International Business as its CEO in November 2020. This could have given the added confidence for the acquisition. Just like the previous deal Byju’s entered into with Whitehat Jr., Aakash will still be running independently and will be led by Mr. Aakash Chaudary post-merger.

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Authors: CA. Anand Kumar, CA. Arun Jose

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