Abu Dhabi Fund 10X AD, Apollo Global in shares about investing in Byju's parent or Aakash
Abu Dhabi-based 10X AD is in talks with Byju’s CEO Byju Raveendran about investing in the parent firm Think and Learn Pvt Ltd or its arm Aakash Education Services (AES) as the edtech business looks to raise at least $400-600 million from investors, said people in the know.
10X AD is a fund pool that specialises in structured investments in late-stage technology companies. It’s not clear if 10X AD will lead an investor consortium of family offices and ultra-high net-worth individuals in Abu Dhabi or go it alone and invest $150-200 million as the Bengaluru-based company strives to turn a corner after being under scrutiny for more than 18 months over corporate governance, audit lapses, business practices, poor financial results and mass layoffs.
Typically, 10X AD makes $30-50 million bets on its own but leans on other pools and even institutions such as ADQ. These structured investments have preferred rights, pick options and guaranteed internal rates of return (IRRs) for “downside protection,” said the people cited above. With this as an anchor consortium, a few other smaller investor groups from the region are also expected to join.
Disrupt AD, Abu Dhabi-based ADQ’s venture capital arm, may also double down on its earlier commitment, said the people cited above. Disrupt AD has been an investor in the company since 2021, having participated with others in a $350 million fundraising that had pegged the valuation at $16.5 billion, making it the most-valued edtech company in the world at the time.
Qatar Investment Authority is another Gulf-based investor in the company, which also has backers such as General Atlantic, Sequoia, Silverlake, Sofina, Tencent, Tiger Global, Naspers and CPPIB among others.
Byju’s has also approached Apollo Global Management, a leading US private equity and alternative asset management group, for a $200-250 million structured funding for Aakash. This may be either at a discount to the next round or via a preferred instrument with a fixed pre-agreed internal rate of return (IRR) and downside protection. Byju’s initial approach to Apollo to join the parent’s cap table had been rebuffed.
Aakash, which runs a chain of physical coaching centres, has done well, growing the business at 40-50% CAGR, experts said. The industry expects Aakash to have clocked $430 million revenue in FY23, up from $250 million in the previous year, and be Ebitda positive. Byju’s spokesperson, 10X AD, Disrupt AD and Apollo did not respond to queries. There is no guarantee that the discussions will lead to any result. Audited numbers for FY22 and FY23 have still not been made public or signed off on, said people with knowledge of the matter.
“It’s really unprecedented - how does any investor put money if there are no baseline audited numbers?” said an investor who passed on the opportunity. “Alternatively, one does a deep-dive forensic and that is a three-four-month exercise.” In the absence of audited numbers, KPMG has done a detailed diligence report for the incoming investors. That is being used for financial references and latest performance updates. A capital raise at Aakash via the secondary sale of shares will help Raveendran pare his 30% stake in the unit, providing liquidity to negotiate its Term Loan B (TLB).
Even Blackstone, which has a small residual stake in Aakash, could get an exit, should they choose to. Most investors are finding it difficult to put a value or ringfence their investment, even in a subsidiary, from the issues at the parent. Discussions with TPG fell through because of the same reason, said people with knowledge of the matter. “The market will decide if the company is valued at $11 or $16 or $21 billion--the times have changed,” said another executive in the know. BlackRock, one of Byju’s investors, has marked down the value of its holding in the firm by nearly 50% to a little over $11 billion valuation.
Lenders have sought up to $200 million (Rs 1,600 crore) in prepayment, along with a higher rate of interest from the Bengaluru-headquartered company as a precondition to restructure its $1.2 billion (Rs 9,600 crore), Term Loan B, which is currently under review, said people with direct knowledge of the matter. While Byju’s has volunteered to raise the interest rate by about 200 basis points (bps), it is yet to agree upon the prepayment clause put forth by the lenders, which include a number of US-based hedge funds, said the people cited above.
Byju’s currently holds $650 million in its overseas accounts and has about Rs 1,500 crore ($183 million) parked in liquid funds in India, as per people briefed on the matter. After months of delay, Byju’s reported losses of Rs 4,588 crore for FY21, up from Rs 262 crore in the previous year. Its readjusted revenue from operations stood at Rs 2,280 crore, down 48% from the projected revenue of about Rs 4,400 crore cited in the unaudited results of Think & Learn.
Byju’s recently appointed former Vedanta executive Ajay Goel as its new chief financial officer. That’s a key appointment as Byju’s needs to close negotiations for its $1.2 billion TLB, among the largest loans secured by an Indian startup. The company said Goel will work with founders and the senior leadership on strategy development, capital planning and financial analysis. “His strategic thinking and financial acumen will be instrumental in helping us create even more value for our stakeholders,” Raveendran had said in a statement on April 3.
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