Mergers And Acquisitions: How Edtech Startups Are Eyeing Exit Strategies

Owing to a large number of edtech startups reaching scale, Gradeup cofounder Shobhit Bhatnagar thinks the past 18 months have been the golden era of edtech startups in India. Bhatnagar’s startup is one of a slew of online learning platforms that have earned success with the high demand for test prep startups as well as online certification platforms. It’s a good time to be an edtech startup in India.

The use of technology for imparting knowledge is not new to India. The first wave of edtech hit the country around 20-25 years ago with the adoption of smart boards and ERP software to manage day-to-day tasks in schools. From then to now, as per DataLabs by Inc42 estimates, there are a total of 4,450 edtech startups operating in India at present.

The sector matures as more players enter the market and try to establish themselves either by offering a unique product or gaining a lions market share. The presence of multiple players offering unique propositions opens doors of possibilities for collaborative synergies.

What Are The M&A Trends In Edtech?

Companies tend to merge or acquire competitors to gain market advantage. Rajeev Tiwari, founder and director of STEMROBO Technologies that offers an integrated science, technology, engineering, arts and math (STEAM) learning programme based on the design thinking approach for K-12 segment told Inc42, “Mergers and acquisitions in the edtech space is generally focussed on either acquiring startups with good intellectual property in the form of content, pedagogy, integrated hardware, and software or by acquiring startups having a proven business model, market penetration and good reach.”

Initial public offering (IPO), and mergers and acquisitions (M&As) are two of the most prevalent exit strategies in any startup ecosystem around the world. As per DataLabs’  The Future Of India’s $2 Bn Edtech Opportunity Report 2020 between 2014 and 2019 a total of 35 edtech startups underwent merger or acquisition. The report further states that the Indian edtech startup ecosystem has seen the participation of 28 active acquirers, 54% of which hail from the education technology sector itself.

Arpit Jain, CEO and cofounder of SplashLearn, an online K-5 math learning program told Inc42, “Acquisitions are mainly done to acquire niche capabilities, or for a growing customer base. Whereas mergers can be done to gain inroads into an alien market with the partner company providing the know-how, and dealing with the local nuances.”

Jain added that globally, very few edtech companies have gone for IPO and none from India, making it a road less travelled. He said, “With so much movement and potential in the edtech sector, consolidation within the industry is possible, with companies finding technology, talent, and offerings complementary to each other. Another ideal exit for an Indian edtech company can be, to be acquired by a global education company.”

What Are The Biggest Exits/Acquisitions In The Edtech Sector?

To look at mergers and acquisitions solely as an exit strategy would not do it justice. There are various reasons for two companies to go ahead with a merger or acquisition deal ranging from financial synergies, accelerating the company’s growth, economies of scale, diversification for higher growth products or markets, to increase market share and positioning, strategic realignment and technological change and diversification of risk among others.

Aarul Malaviya, founder of Zamit, an information, engagement and interaction platform that networks schools, students, teachers, parents, and school service providers told Inc42, “Long sale cycles set edtech back; it can take years to test, sell and improve an edtech product. Furthermore, scaling could prove to be an issue. A product that helps education in a certain country might not necessarily be useful beyond its borders.”

While Tiwari of STEMROBO believes that India is a country where the teacher to student ratio is always on the unhealthy side and a one size fits all model does not work anymore. Adding on the topic he stated, “There has to be a proper use of technology at every level of education. Each subject, each course, and each student needs a personalized way of learning that is self-paced.”

Adding to these set of challenges, Michał Borkowski, CEO and cofounder of Brainly, a peer-to-peer learning community said, “One of the key challenges (and consequent opportunity) in the country’s edtech sector stems from the ever-widening gap between the number of Indian-language internet users and their English counterparts.”

As an international company in India, Borkowski says the market has one of the highest potencies for investors in the edtech sector. “Education has been of prime importance in the country, and recent factors like increasing internet accessibility, better-quality content, the growing need for supplemental education across all age groups, and more focus on the consumer-side, etc. are making it a highly viable market for VCs and investors. In fact, India has been such a model edtech market that other countries have begun following the trends witnessed here. For instance, in the US, investors are turning to consumer-learning products and investing more in those. However, India is among the pioneering and most significant markets in the consumer-learning domain and therefore, the edtech space is bound to see a higher level of interest from investors and attract larger investments,” he said.

The set of challenges present a strong case for collaborative opportunities to create a win-win situation. Rohan Krishna, CEO and cofounder of Get Me A Course, an aggregator for global learning courses told Inc42, “The question that startups should ask themselves is ‘When do you build your exit strategy?’ If you are thinking about an exit strategy at the initial stages of your company, then your product is definitely not meant for the long term. In India specifically, there have been very few exit stories. A startup can look at acquisition and merger with a bigger brand that believes in your product and has the ability to take your mission forward and execute it on a larger scale.”

Stating inorganic growth, increasing product range or geographical reach, and talent acquisition as the key factors for acquisition, Zishaan Hayath, CEO and cofounder of Toppr, one of India’s leading online learning apps, added, “Growth is a big reason why companies are acquired, as companies can become dominant players in the industry after strategic acquisitions.”

Seconding the DataLabs analysis on the test prep market, Hayath said, “Test prep and supplemental education platforms are expected to grow fastest over the next few years. These fields are expected to see an over 10X growth in 5 years, from 2016 to 2021.” He further banks on the industry to move towards “Super Apps” – apps with a multitude of offerings that will give students a variety of choices and a complete learning experience.

On collaborations, via M&As the Toppr cofounder added, “Product innovation definitely forms one of the major aspects of any kind of merger and acquisition in edtech. Innovative technology needs top talent so as to be able to successfully customise upcoming technology according to the product requirements. Therefore, based on a particular edtech start-up’s reason for merger or acquisition, talent acquisition could play an important role. Getting the right people in your team can make all the difference in whether your company fails or succeeds.”

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