Indian billionaire Ranjan Pai, who pocketed close to $1 billion from selling part of his stake in hospital chain Manipal Health Enterprises to Singapore’s Temasek, has just placed a contrarian bet. On Friday, Pai agreed to invest $170 million in Aakash Educational Services, an offline test-prep subsidiary of beleaguered edtech firm Byju’s.
The investment, to be made through Pai’s family office, will allow Byju’s to pay off a loan of an equal amount taken from global investment management firm Davidson Kempner. Byju’s founder Byju Raveendran had pledged a significant number of his shares from his 27% stake in Aakash with Davidson Kempner to secure the loan and those pledged shares will get transferred to the family office.
Pai—who has a net worth of $2.8 billion, according to Forbes’ real-time tracker—is also believed to be negotiating to buy an additional and as-yet undisclosed stake in Aakash. Pai’s rescue act will end the legal tussle between Byju’s and Davidson Kempner. As part of a structured credit deal signed in May, Byju’s was granted a $245 million loan by the investment outfit. Byju’s had received only 8 billion rupees ($98 million) as part of the arrangement when it allegedly breached a covenant and defaulted on the loan. This led to a legal battle which has now been resolved. Neither Byju’s nor Aakash has released any formal statement on this; Byju’s did not respond to a request for a comment.
Industry observers say that Pai’s bailout sets Aakash on a clear growth path without being sucked into the problems of Byju’s. Think & Learn, the parent company of Byju’s, had acquired Aakash for $950 million in 2021 through a 70% cash and 30% equity deal from the test-prep firm’s founder Aakash Chaudhry, who is now tipped to return as CEO. The Chaudhry family retains an 18% stake in Aakash while global private equity giant Blackstone has a 12% stake.
Aakash was gearing up for an IPO in 2024 but it is now speculated that it may be sold to solve some of Byju’s burgeoning problems, which range from mass layoffs to losses.
In early November, Byju’s finally released its long-awaited financial results for fiscal 2022, which do not include Aakash. Revenue more than doubled to 35.7 billion rupees while its losses reduced to 22.5 billion rupees from 24 billion rupees in fiscal 2022.
Pai’s investment in Aakash is in line with his mission (as disclosed in an interview with Forbes Asia earlier this year) to use at least some part of his cash pile as “confidence capital” to revive distressed startups. “There’s no point in putting more and more money into new startups,” he had said. “We need to support existing startups.”
Byju’s was once touted as one of the most valuable edtech companies in the world with a valuation of $22 billion as of March 2022. The education outfit’s valuation was slashed to $5.1 billion after Netherlands-based investment group Prosus, formerly Naspers, wrote down its stake by 77% in June.
Pai hasn’t made a blind bet. He was an early investor in Byju’s parent Think & Learn when he bought a 26% stake for $8 million in 2012 through Aarin Capital, a venture capital firm he co-owns with Mohandas Pai (not related), the former chief financial officer of IT giant Infosys. Aarin bagged a multi-fold return when it sold most of its shares in 2015 before fully exiting in 2021, just before the edtech firm was engulfed in a series of crises.
“It is good that somebody who knows the company from the early days is coming in but he is doing it at arm’s length by investing in Aakash and not in the parent,” says Arun Natarajan, founder of Chennai-based data and analysis provider Venture Intelligence. “This is a strong signal and it will be watched very closely.”
Meanwhile, Raveendran, a math tutor-turned-edtech entrepreneur, is reportedly trying to drum up more funds by selling digital reading platform Epic that Byju’s had acquired in July 2021 for $400 million.
These efforts are being made at a difficult time. More than 2,400 Indian startups shut shop in calendar 2022, twice the number from the year before, according to Tracxn, a Bangalore-based platform which provides startup data.
Unfazed, Pai is ploughing ahead with backing faltering startups. He’s now the largest shareholder, with a 15% stake, in troubled Mumbai-based online medicine seller PharmEasy, which he acquired via a rights issue last month at a 90% discount to its peak valuation of $5.6 billion in 2021. He’s also taken small stakes in omnichannel jewellery seller Bluestone and beauty products retailer Purplle.
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