The inevitable impact of school closures on the ed-tech industry in Asia has been evident through the rapid growth of companies since the beginning of the pandemic. This is supported by the dramatic increase in shares for GSX, a Chinese online education provider, which jumped 92% from the start of 2020 to March and reported a 15m increase in student enrolments for free online courses in a month, as well as Hong Kong’s Snapask’s 35m USD rise in valuation within a month. More recently, India’s Eupheus Learning has managed to raise 10 million USD from the private equity firm Lightrock last September, and the global expansion of Singapore’s EduSpace to partner with South American venture capital studios, further reaffirms the sector’s undoubted acceleration. Amongst such expanding companies, one business has effectively established itself as a monopoly of the industry, the Indian start-up, Byju.
Alongside the mentioned businesses, Byju’s success also began in March 2020, with its immediate 60% increase in students using its products since it offered children free access to its app to help offset the impact of school closures. Since then, it has raised over 1 billion USD and acquired a dozen global competitors to become an umbrella holding company for ed-tech companies, clearly representing the pandemic’s long term impacts on M&A activity in Asia. The numerous Asian ed-tech companies acquired include Aakash Educational Services, Great Learning, Scholr, Toppr, and GradeUp- and their recent acquisition of companies such as Austria’s GeoGebra and US-based Tynker demonstrate their impressive global expansion across Europe and North American markets. Their success is also reflective of the intricate relationship between politics and business across the emerging markets, as China’s ban on for-profit tutoring companies and many commercial regulations undoubtedly positively impacted Indian ed-techs such as Byju, who could actively raise funds to grow their global M&A footprint.
Despite their rapid success, the company has more recently been in the midst of legal disputes regarding refunds and deficiency of service. India’s consumer courts have ordered it to pay damages to customers who claim they were forced by misleading sales agents into buying unaffordable products that do not fulfil the objectives promised. Despite reporting their settlement in these legal cases and their grievance redressal rate of 98%, the disputes have exposed the company’s aggressive sales tactics on parents who can’t afford their services and their toxic high-pressure sales culture that pushed their employees to work unhealthy hours- revealing the questionable business ethics behind the company’s rise. In an attempt to re-spark investor confidence, Byju has recently announced its plans for mergers with at least three American SPACs. If successful, this plan is reported to potentially lead to an IPO in a period of three to four weeks, a route designed to bring US investors and partners on board. This has started the race for India’s most valued startup, with SPAC firms competing to offer the highest valuation, including Michael Klein’s Churchill Capital, Michael Dell’s MSD Acquisition Corp, and Hollywood veteran Harry Sloan, amongst whom Klein is reported to have offered a capital of $500 Mn into the SPAC’s Private Investment in Public Equity (PIPE), alongside investments from Sam Altman of Y Combinator and Sal Khan of Khan Academy, and Dell has offered Byju a valuation of $45 Bn to $52 Bn.
However, not only is it uncertain whether the announcement of such plans is sufficient enough to overcome their recent legal exposure of toxic workplace culture and customer exploitation, but the way the merger will proceed will also be interesting to observe. The direct correlation between SPAC mergers and legal disputes due to complex valuation issues, risk of personal liability for their sponsors and board directors and additional regulatory requirements, suggests that Byju might not necessarily reach their goal of a global monopoly. Moreover, Byju’s exponential growth during the pandemic, when market conditions have been subject to temporary protections offered by governments and regulators around the world, leading to an optimistic overlook of due diligence and underlying issues, further suggests the uncertain future of this Asian ed-tech giant, as this could potentially lead to W&I insurance issues.
Byju is certainly a business whose trajectory will be fascinating to keep up with, with its implications on M&A, W&I insurance, and its clear representation of the technological advancements and complex business-politics relations of emerging markets. Despite the uncertainty of this monopoly’s future, it is undeniable that the future of education and technology across Asia will continue to evolve and greatly impact market trends.
Analyst: June Seo Chung
Sector Head: Gregor MacDonald