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The EdTech Deal story

Popular perception says that there are two times when businesses look for acquisitions. Either when they are doing exceedingly well and have enough money to plan more growth or when they are in deep trouble.

Paradoxically, 2020, ended up being both for different companies. And it was no different in EdTech. Tracxn lists 25 acquisitions during 2020 and till early March of 2021. Just as K12 EdTech hogged the maximum investments during the year, it also saw the lion’s share of the acquisitions.

Source: Tracxn

Bolstered by investor funds and a market that was waking up to the need for EdTech post COVID-19, it was natural to expect acquisitions. Done right, they would not just add to the top line and bring in specialist expertise but also deliver value and deliver exits, hopefully, at the right price to founders and their investors.

We delved into both sides of the story, the ones acquiring the companies and the ones who went through the deals, to understand the reasons behind the deals that happened over 2020 and what we are seeing so far in 2021.

Build Me a Vertical

For the largest funded EdTech companies, especially for Byju’s and Unacademy, it has been a busy year of acquisitions. As we had analyzed earlier, Byju’s has made two large bets with Aakash and WhiteHat Jr and smaller acquisitions in between, and while Unacademy made a greater number of acquisitions, they were mostly smaller in value.

As both teams now try to figure out their strategies, post-acquisition, one thing is becoming clearer. Byju’s is building more depth in K12 and test prep space, across all kinds of verticals. And Unacademy, with their “Netflix for Education” dream, is building a bouquet of solutions that can cover test-prep as well as the broader continued learning space, over time.

No Doubts About This

Meanwhile, build vs. buy is often a key feature in new product feature discussions. And strengthening products was a key focus for many EdTechs over the last few months. And among the most-in demand-features, one stood out- doubt solving.

If self-learning was EdTech 101 and Live learning was EdTech 102, Doubt Solving has now come as a short in the arm of both, almost completing the circle of online learning.

Given often low average engagement and completion rates for many online learning solutions and the fact that many learners felt isolated during COVID with little or no physical institutional learning or peer learning access, doubt solving was a way to both bridge the gap in terms of communication and, hopefully, show more improvement in learning. No wonder then, in quick
succession, Byju’s acquired Scholr and Vedantu acquired Instasolv.

Market Day

Access to market is the other age-old reason for M&A. And it was no different in EdTech. Think about it. The first adopters of EdTech, students whose parents could afford the after-school tuition and test-prep solutions that had been the early EdTech forays, were already aware of the solutions. A lot of competition for the same set of learners. But COVID opened the door to a new segment of learners who may not have chosen online learning earlier but no longer had a choice. And there were wide variations across their situations. Access to network, access to devices, availability of solutions in different languages, free vs. paid solutions were all considerations that became more real and pronounced.

There were companies that were addressing large groups of students who were hitherto untouched by the large EdTechs, either offline or online. And that market access was the reason for acquisitions such as Byju’s’ deal with test-prep behemoth Aakash as well as NoPaperForms’ acquisitions of Parents Apply and Intelli Admissions.

Upstream or Downstream?

Getting an ability to extend the product reach by either solving challenges upstream or downstream is a key reason for companies again to flex their M&A muscles. Convegenius, a company that has been working on affordable EdTech solutions and WhatsApp based learning acquired GrayMattersIndia, an assessment firm. Learning assessment is an ongoing ask in EdTech solutions and this acquisition can help Convegenius take that extra step in building assessment solutions. Meanwhile, NSE’s deal with TalentSprint is more a merger of technology and financial services learning. And GetmyUni’s acquisition of Avagmah again helps them cross the value chain from student acquisition to content.

Offline Scale

Meanwhile, there are some deals that would not be tracked on Tracxn or by any EdTech market watcher. But schools themselves have been undergoing a big shift in 2020. Given the lockdowns, the need for moving online, the stress on fee payments, salary, infrastructure costs, and more, many individual schools struggled in 2020. And there was a trend of chain school models emerging among private schools; either a direct chain model or a more indirect model like how Lead Schools is enabling multiple schools to run on their technology and systems creating network effects of scale.

2021, we predict, will see more such deals. Some will be due to investor pressure for exits. Some will be genuine value creators, for both sides.

EdTech is already quite a long-tailed business. There are four things really needed for it to work. Market access. Content Delivery. Technology. And customer experience. Our assessment is that every firm must build the best possible customer experience. But content, market access and technology could have individual expert companies that need not all fight the same battle. More deals can be expected that merge the value chains, for better scale and reach. We also expect more deals in the continued education and higher education space given the flexibility NEP is bringing in.

Watch this space for more on EdTech, Education, and everything in between.

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LoEstro Advisors

LoEstro Advisors

Advisory firm with sharp focus on Fundraise, M&A, and Strategic Consulting.