BYJU’S – Pioneer in today's M&A strategy

Byju’s, an edtech start-up founded in 2011 by Byju Raveendran and Divya Gokulnath, has taken centre stage once again with an acquisition that has everyone scratching their heads. The deal to acquire Whitehat Jr, a platform to encourage kids to take up coding, has an eye-popping valuation of $300 million. The acquisition is being seen as a gamble by many. However, it is pertinent to keep in mind that this is simply one of Byju’s many large scale tech acquisitions.

The acquisition comes off as completely reasonable in the backdrop of a pandemic, where physical attendance at educational institutions, has been deferred indefinitely. The pandemic has forced millions of children to go online, alongside giving impetus to a severe emphasis on the importance of digital learning. Further, the recent National Education Policy (NEP) has made coding a compulsory part of the curriculum to promote active learning in schools, and Whitehat Jr is a leader in this niche space.

Some have argued that the company is barely 20 months old, but the numbers do not lie. The coding platform boasts about three million students with 20,000 classes a day and 5,000 teachers working with them. This shows that the company is scaling at alarming rates, even after raising only $11 million from venture capitalists. In the edtech category, this is a tiny amount when compared to bigger players such as ‘Unacademy’ and ‘Toppr’ have raised 200 million and 112 million, respectively.

The most eye-catching stat is that the company has been cash flow positive for the last five months and has a remarkable annual revenue run rate of $150 million. A cashflow positive start-up in India with real positive future revenues in such a niche area is a true unicorn. With a revenue run rate like that of Whitehat Jr, no edtech firm would let go of such an opportunity, and BJYU’s simply took it.

Education is a business that is growing tremendously as people have started viewing educational expenses as investments and not as costs. Therefore, this move from Byju’s is not just strategic but also about making a statement about the edtech sector. The timing and numbers are perfect for Byju’s to create a narrative to set up the next round of funding, which would make this investment of $300 million negligible.

Byju’s has a very distinct way of functioning, one which is spiked through inorganic growth as seen in their recent acquisition. This time they have tapped the small but emerging coding market, but over the last five years they have made strategic acquisitions in different incipient areas. With six edtech acquisitions now, BYJU’s is gradually becoming the edtech Super app.

With its most recent acquisition of Whitehat Jr, Byju’s is focusing on its idea of not only becoming a leading name in India, but to have a significant presence all over the world. Whitehat Jr had 60% of its users coming from USA and had recently planned to expand to markets like Australia, UK and Canada. Byju’s has followed this strategy in the past as well with its acquisition of ‘TutorVista’ which got 70% of its traffic from the US.

Byju’s has truly become a forerunner in carrying out acquisitions over the last couple of years. It all began when they acquired student assessment platform ‘Vidyartha’ in 2017, which help them notice the importance of inorganic growth through acquisitions. They followed this with US-based online tutoring apps such as ‘Edurite’ and ‘Tutorvista’. In 2018, the company looked at niche areas and acquired math learning start-up ‘Math adventures’. In 2019 another US-learning platform ‘Osmo’ was acquired for almost $120 million to further expand overseas.

This year they have already acquired Whitehat Jr. and if the company is also in talks to acquire another Start-up ‘Doubtnut’. This start-up is also just two years old and the deal is expected to be more than $125 million. If we are to analyze the acquisitions made by BYJU’s it is very evident that the aim seems to be on uniting younger organizations that have their very own niche offerings. This is seen in ‘Doubtnut’ which had high number of users in tier 2 and 3 cities because of its local language proficiencies.

In an area that is undergoing such rapid growth, it is important to be the first player and the organic route is not a favourable outcome in such a situation. The M&A strategy allows edtech start-ups to acquire competitors and their niche capabilities, thus gaining market advantage. Smaller start-ups in this sector would be looking to be subsumed by bigger players as an exit strategy. BYJU’s has figured this concept and has been benefitting from it for the last five years.

Byju Raveendran has elaborated on his philosophy behind M&A, stating that if an acquisition fits into their strategy and adds another vertical for students to utilize, then they would surely examine it. He further compared the edtech sector to the growth seen in the ecommerce field, where Amazon and Flipkart are now getting smaller stores on their platform. In the same way, Coaching classes have been subsumed into online learning spaces and are leading the way by roping in smaller platforms to offer better services.

It maybe a long shot to compare Byju’s to the likes of Amazon for many, but they are the frontrunner in their sector with the latest funding rounds valuing them at $10.5 billion. This valuation is more than any other edtech company in the world.

It is true that the pandemic has been a blessing in disguise for the edtech sector with higher valuations than usual, but there is no denying the genius behind BYJU’s acquisition strategy. They have gradually built a conglomerate of smaller smart apps to make one super app that is reliable and with Whitehat Jr. they have another one in the hat.

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