In what could become one of the most significant consolidation moves in India's education technology sector, Temasek-backed upGrad is currently negotiating to acquire rival platform Unacademy. This potential merger represents a major shift in the edtech landscape, with implications extending far beyond the classroom.
The Financial Mechanics Behind the Deal
According to initial reports from Moneycontrol, the two companies expect to finalize the agreement within the next three weeks. The proposed deal would value Unacademy at approximately $300-400 million (₹2,500-3,300 crore), a significant drop from its peak valuation of $3.4 billion (₹28,000 crore) during its 2021 funding round.
The primary driver behind upGrad's interest appears to be Unacademy's substantial cash reserves, estimated between ₹1,000-1,200 crore. At a time when external funding has become challenging for edtech companies, this cash infusion would strengthen upGrad's balance sheet without requiring a new priced funding round.
Michelle Solomon Le Page, partner at law firm Solomon & Co, explains that a typical share-swap structure means the acquiring company has no immediate cash obligations. "In a pure share-swap deal, the acquiring company makes no cash payment. Instead, shareholders of the target company exchange their shares for shares in the acquiring company," she stated.
Strategic Benefits for upGrad
This acquisition offers multiple strategic advantages for upGrad. Despite achieving operational profitability with gross revenues of ₹1,650 crore, the company stands to gain immediate liquidity while minimizing equity dilution. The deal would also transform upGrad from a specialized skilling platform into a comprehensive education company spanning test preparation to lifelong learning.
A source directly involved in the negotiations revealed that "upGrad gets a business with ₹500 crore topline and ₹100 crore burn, which they can run with the existing CEO who will stay on for at least two to three years."
The timing aligns perfectly with upGrad's reported plans for an initial public offering around 2026. By presenting itself as a diversified education player during pre-IPO rounds, the company could command stronger valuation multiples from investment bankers.
Unacademy's Journey and Founder Ambitions
For Unacademy co-founders Gaurav Munjal and Roman Saini, this deal could facilitate their long-standing ambition to separate Airlearn, an AI-based language learning company incubated under Unacademy. Earlier separation plans proved more complex and time-consuming, leaving both Unacademy and its investors in limbo.
During the edtech sector's peak, Unacademy secured substantial funding, raising $880 million from prominent investors including SoftBank, Temasek, Tiger Global, Sequoia Capital, and Peak XV Partners. Their last funding round in 2022 brought in $440 million at the $3.4 billion valuation.
However, the post-pandemic edtech downturn, compounded by Byju's collapse and the industry-wide shift back to offline learning, created challenges for the primarily online-focused platform. Munjal, known as a tech-first entrepreneur, found the move toward offline operations particularly challenging.
Challenges and Investor Considerations
Despite significant progress, several obstacles remain before the deal can be finalized. Previous discussions about Unacademy's sale have collapsed multiple times with various edtech players, and sources caution that current negotiations remain delicate.
The term sheet has been exchanged, and both parties are negotiating critical aspects including the share-swap ratio based on upGrad's valuation assessment, along with the eventual shareholding and liquidity structure for Unacademy's early and late-stage investors.
Nitin Bhatia, Managing Director of DC Advisory, highlighted the challenging mathematics for investors: "The current valuation is actually lower than the total capital that has gone into the company. Close to $900 million has been invested, and now the company is being valued at around $300-400 million based on newspaper reports."
Bhatia further explained that "investors are getting maybe 30-40 cents to a dollar, while founders and management may get completely wiped out because of liquidation preferences and other such clauses, unless investors show flexibility. Whatever investors recover, a substantial portion could come in the form of upGrad shares, not cash."
Broader Implications for Indian Edtech
If successfully completed, this acquisition could significantly alter competitive dynamics in India's edtech sector. The combination of Unacademy's test preparation expertise with upGrad's upskilling capabilities would create a formidable player capable of challenging market leaders like PhysicsWallah.
The deal also signals a new phase of maturity and consolidation in an industry that experienced explosive growth during the pandemic, followed by a painful correction. As investors become more cautious about edtech valuations, cash-rich companies like upGrad are positioned to acquire distressed assets at favorable terms.
For the broader ecosystem, this potential merger demonstrates that sustainable business models, operational profitability, and strategic cash management have become more critical than mere user growth or market share in the current investment climate.
