How BYJU’S Acquisition Of Aakash Can Change The Test Prep Market

Indian decacorn BYJU’S is about to make its seventh acquisition, and this time, it could be one of the biggest edtech deals in the world. The country’s largest online education startup is likely to spend $1 Bn to acquire Blackstone Group-backed offline test prep major Aakash Education Services (AESL). In August 2020, BYJU’s acquired WhiteHat Jr, a coding platform for kids, for $300 Mn. But the AESL deal, if it goes through, could be a game changer for several reasons.

The Bengaluru-based eponymous brand thrives on K-12 online lessons and test prep modules and has seen a staggering rise in user traction as offline schools and coaching centres had to shut down due to the Covid-19 pandemic. But of late, key competitors like Unacademy have stolen a march on BYJU’S with their live tutoring for competitive exams. Interestingly, the entry of Unacademy and its live training modules have compelled BYJU’S to shift from its pre-recorded tutorials to a similar live-lesson format last year. But that was not enough. 

With brick-and-mortar schools gradually reopening and edtech rivals steadily catching up, the company is under pressure to maintain its leadership position and expand its market presence. The company has also realised the need to have a larger presence in the competitive test preparation market to grow its reach and revenue, say experts. And Aakash proves to be just the right target as it leads the offline coaching market for medical and engineering entrance exams (more on that later). 

The Indian edtech giant will be looking to close the deal “in the next two or three months” for close to $1 Bn, according to a Bloomberg report, which quoted unnamed sources. Later, Aakash confirmed the same in a press statement. 

The Bloomberg report claimed that the AESL CEO Aakash Chaudhry (son of founder J.C. Chaudhry) and the Chaudhry family would completely exit the business while Blackstone would swap a portion of its 37.5% equity in Aakash for a stake in BYJU’S.

What Aakash Can Bring To BYJU’S Portfolio

Backed by the PE firm Blackstone Group that invested $500 Mn in the company in 2019, AESL runs the Aakash Institute that has 200+ physical coaching centres across 130 cities for providing engineering and medical test prep services for classes 10-12 students. It also offers foundation courses to classes 8-10 students for school boards and junior competitive exams (here is a remarkable synergy with BYJU’s). These offerings by the offline major are categorised under three brands – Aakash Medical, Aakash IIT-JEE and Aakash Foundations (for classes 8-11). According to its website, the company has more than 250K learners in its fold.

“Putting all speculations to rest, we would like to state that AESL is on a mission to build India’s largest digitally enabled, omnichannel education company. We will accelerate our digital transformation and deliver phenomenal value to our students,” an AESL spokesperson said.

Aakash is also keen to expand its omnichannel and digital offerings to embark on the next trajectory of quality education and growth, the spokesperson added. 

Interestingly, Aakash has been building its presence in the edtech ecosystem for a year now. The company purchased the entire stake of Info Edge (India) in edtech content and assessment platform Meritnation for around INR 50 Cr (nearly $7 Mn) in January 2020. If the BYJU’S-Aakash deal goes through, this could be a win-win scenario for both companies, say analysts who spoke to Inc42 on this subject.

Why Test Prep Is An Important Market For Edtech Players

Test preparation is an evergreen market in India, given its obsession with grades, admission to engineering and medical courses and gilt-edged government jobs. Online test prep startups bagged $1,776 Mn between 2014 and H1 2020, more than 25% of the total funding raised by Indian edtech startups, according to data from Inc42 Plus.

The country is expected to have 37 Mn paid edtech users by 2025 compared to the 10 Mn-odd in 2020, as per Inc42 Plus data, and the test prep segment will comprise around 5 Mn users. Moreover, among the four major areas of edtech – K-12, test prep, online certification and skill development – the average ticket sizes of test prep and K-12 are expected to see maximum growth. From around $666 spent per user per year, the test prep ticket size is expected to grow 75% to $2,669 by 2025. So, a deal with AESL is bound to give the edtech giant a firm footing in two of the most lucrative segments.  

What Else Will BYJU’S Need To Add To Its Edtech Acquisitions?

BYJU’S had a strong presence across urban markets even before the pandemic fuelled the recent edtech boom. Since the mandatory lockdowns from March 2020, the company claims to have added 25 Mn+ students to its platform. It also secured more than $1.2 Bn in funding last year, taking the total funding amount to $2.1 Bn, and hit the decacorn status at a $12 Bn valuation. However, a significant amount of that funding went into acquisitions. 

As mentioned above, BYJU’S mostly specialises in pre-recorded classes for the K-12 segment. But a strategy change became inevitable in 2020 due to the rising demand for live lessons, successfully adopted by its rival Unacademy.  In fact, Unacademy spent more than $55 Mn in 2020 to buy out English coaching platform Mastree and test prep platforms Coursavy and PrepLadder. Now BYJU’S seems hell-bent on catching up with it by betting big on the test prep space and targeting Aakash Education for a mind-boggling amount.

 

“Over the past year, Unacademy has had a significant leap in the test preparation market, especially in the K-12 category, and BYJU’S did not want to fall behind here,” says an analyst who does not wish to be quoted.

Furthermore, this is closely linked to investments and valuations, which BYU’S will have to justify. Currently, both K-12 and test preparation are the most active segments in terms of fundraising. According to Inc42’s Edtech Opportunity Report 2020, the combined sector is expected to cross a net worth of $1.2 Bn by 2021. Moreover, during FY2014-2019, test prep startups such as BYJU’s, Unacademy and Vedantu raised $1.4 Bn out of a total of $1.8 Bn poured into the edtech sector. 

“BYJU’S offerings in the test prep space are not significant at present, but the company is working on this space for some time. While it is likely to retain the product and the value proposition offered by Aakash, the company would have created its own strategy for the larger test prep segment,” says the analyst mentioned above. 

For BYJU’S, the next set of focus segments, and possibly acquisitions, may come from other test prep areas such as civil services, government and banking exams as well as law and management entrance exams, say analysts. The edtech leader’s key competitors in this space include Facebook-backed Unacademy, Omidyar-backed Vedantu, Tencent-backed Doubtnut, RIL-backed Embibe and Iron Pillar-backed Testbook.com. The test prep space is likely to see some intense action in the coming years as Jeff Bezos-led Amazon Academy already forayed into the segment last year. The academy was formally launched in January this year and focusses on IIT-JEE coaching.

A look at some relevant numbers will put this market potential in the context. Annually, 2.5 Mn+ Indian aspirants appear for NEET, 10 Lakh+ write the UPSC exam and 2.6 Mn+ try to qualify for banking entrance tests. Add to that several state-level versions of these exams, and one can easily understand the scope of this market that caters to people vying for a fast-shrinking pool of ‘secure’ jobs.

“There are 60 Mn people in India who take these tests (annually), and around 5 Mn of them are currently paying for edtech solutions. So, the opportunity is massive. Test prep requires a strong knowledge of previous years’ papers, well-defined rubrics and adaptive problem sets, and offline players (apart from the likes of Unacademy) are well-versed in those. But even the offline players will also grow and seek out new ways to go online in this market,” says Sajith Pai, director of Blume Ventures. 

According to him, while online edtech brands will seek growth, offline players will also continue to build an online presence organically or through technology enablers. “Nobody will remain a pure offline player now. The key is to have the mindset for change,” he says.