What are Byju’s options as Blackstone’s payment deadline approaches?

0

Edtech Major Byju’s is evaluating several options, including raising a funding round or structured financing round as the deadline approaches to settle dues with private equity firm Blackstone for the Aakash Educational Services deal .

According to sources speaking to BT, Byju’s held several rounds of talks with a number of Middle East-based investors, including Abu Dhabi Sovereign Wealth Funds (SWF) and the Qatar Investment Authority (QIA), but those talks have not yet come to fruition. The company turned down an offer from one of the sovereign wealth funds to invest at a valuation in the range of $10 billion to $12 billion, about half the valuation it received in the last round.

According to an investment banker, the Bengaluru-based edtech giant also held talks with Dubai-based GEMS Education and other education investors, but those talks also fell through due to disagreements over the evaluation.

It would be a daunting task for Byju to increase a $23 billion valuation in this market as private investors seek greater downside protection. Experts say the company may have to settle for a seed round or agree to a structured deal involving high liquidation preferences or a guaranteed internal rate of return (IRR).

“If the company wants to raise $23 billion in this market, it will have to take a structured route. Investors would ask for a 2-3x liquidation preference or guaranteed IRR. These are structures where the overall valuation does not make sense. Private equity funds are doing these kinds of deals day in and day out, while venture capital firms are looking for direct deals. Byju’s by size is in a category where they can’t raise capital from the Accels and Sequoias of the world, they are in the PE tranche or even higher,” said a venture capitalist. .

According to Byju’s recent press release, the company recorded gross revenue of around Rs 10,000 crore or $1.25 billion in the 2022 financial year. of $23 billion is exaggerated.

“Even if the company has really hit that number and grows revenue to $2 billion in FY23, it’s asking for multiples of 14x to reach a $23 billion valuation. Why would anyone tell him would give a 14x, even in a normal market 14x is too high In this market you will get 5-7x at best At $2 billion a multiple of 7 will only get the company a valuation of $14 billion. People aren’t mad anymore, there’s no more FOMO. In fact, there’s a lot of fear in the economy. Byju’s can raise more funds and would even advertise it as a markup on valuation; however, the internal terms and structures would be very, very different,” said one investment banker.

“An investor can even enter a trade with a 1x liquidation preference, but can choose a guaranteed IIR of 25-33%. Suppose they go public in 5 years, an IRR of 25% equals 5x. these conditions, you will first have to give 5x to this investor in case of exit. It’s like a liquidation preference, but it’s time-bound. Or you can insert a term that allows you to get a high discount at the time of public listing,” he added.

According to the company’s financial statements for FY21, it is due to repay the remaining amount of approximately Rs 2,000 crore to Blackstone by September 23.

“Under the terms of the agreement to acquire Aakash Educational Services, consideration in the amount of Rs 1,983 crore was to be paid by the company to the sellers in June 2022. This has been postponed until September 23, 2022,” the company’s official financial statements said.

Sources said the company may seek a brief extension until the end of the month to settle dues. And Blackstone is likely to offer the company a further extension as it wants to avoid legal action.

“I don’t see Blackstone pleading at this point. This is not a case of fraud, at least there is no proven case of fraud. On the contrary, they can only arbitrate, because the agreement speaks of arbitration. I don’t think Blackstone is getting super aggressive. They will probably give them an extension or try to restructure the deal, which is only the last option. A legal battle would paint Blackstone as a very aggressive investor, and they don’t want that either,” a legal expert said.

An email query sent to Byju’s and Blackstone did not elicit immediate responses.

Share.

Comments are closed.