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Some PEs such as Carlyle are open to backing Aakash Chaudhry, former CEO and part of the family that founded AESL, to buy back the company. These funds have had working relationships with Chaudhry in the past. He and his family, along with PE Blackstone, sold AESL to Think and Learn (TLPL), Byju’s parent, in April 2021 for $950 million in stock and cash. But the sale is yet to be concluded. Most funds approached thus far have only been interested in deals that involve a change in management control with at least 51% stake being sold to them, said the people cited above.
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Pai’s Terms Hold Key to Talks
The parent company denied the move.
“Think and Learn Pvt Ltd is not considering any sale of Aakash Education Services Ltd. AESL is core to the growth strategy of T&L,” a spokesperson told ET.
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The discussions are preliminary and dependent on valuations, diligence and the approval of shareholders as well as hedge fund Davidson Kempner (DK), which is owed $96 million.
These talks take place as Byju’s has reportedly asked Chaudhry to return to the company in his previous role, replacing Abhishek Maheshwari, who left AESL last month, ET reported on October 16. This would be part of an arrangement that includes closing out the long-pending stock-swap deal with Byju’s, announced as part of the 2021 agreement.
Meanwhile, Manipal Group chairman Ranjan Pai has stepped in as white knight to provide liquidity to the Byju’s founder and help him clear dues to lenders. Pai, according to executives close to TLPL, has extended about Rs 900 crore in loans and is expected to deploy additional equity.
Any negotiations with PE funds will therefore be dependent on Pai’s final terms of engagement and the quantum of investment, said the people cited above.
Pai is said to be looking at an equity investment of $100 million through secondary share purchases from the TLPL founder and a $170 million structured debt investment to help Byju’s clear dues to Davidson Kempner. This will significantly dilute Raveendran’s stake in AESL. ET reported on October 12 that Pai may invest a total of $250-300 million, more than three times the $80 million planned originally, and even rope in other financial investors.
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Pai is also said to be open to buying a larger stake in AESL at a discount, amid the tussle between key stakeholders.
“Byju is juggling multiple balls. The immediate concern will be to settle DK’s dues. The idea is to take forward the deal that comes through,” said one of the executives cited above. “So with Ranjan Pai as an anchor, PEs are smelling a buyout opportunity.”
TLPL owns 43% of AESL and Raveendran holds 27% in his personal capacity, adding up to a block of 70%. The Chaudhry family owns 18% while Blackstone holds 12% in the three-decade-old test prep company. Under the swap agreement, the Chaudhrys will get shares in TLPL. Blackstone too may want to cash out of its five-year-old investment though the firm’s stand is not yet clear.
Raveendran is said to be expecting a Rs 7,000-8,000 crore valuation for AESL, similar to the acquisition price. The funds are unwilling to commit to any investment without independent due diligence, especially since the latest available audited accounts of TLPL are for FY21.
As per industry estimates, AESL clocked Rs 300 crore in Ebitda and Rs 2,300 crore in revenue in FY23. The Ebitda number is said to be the same as that of FY20, which was used to value the business when Byju’s did the deal in 2021, even though the top line is expected to have doubled since then. However, the FY24 ebitda is estimated to drop significantly.
“The business may have grown but profitability has not kept pace. It has also seen attrition of teachers and students,” said an executive close to the company.
TLPL is to announce its FY22 results by the end of this week, the company had said on October 16 — a delay of more than 19 months. These numbers will be critical in understanding overall performance since the fiscal year saw eight acquisitions, including AESL, both in India and abroad while securing over $3 billion in equity and debt.
The approval of Davidson Kempner is a key factor. In May, Byju’s signed a Rs 2,000 crore ($240.6 million at current rates) structured credit deal with Davidson Kempner against the cash flows of AESL. In June, Byju's was in technical default. The US-based investor issued a default notice and sought control of AESL while launching arbitration in Singapore. The investment firm also withheld a significant portion of the amount — Byju's was only able to draw down $96 million (Rs 800 crore).
The two sides are said to be working on an accord under which Byju’s will pay the Rs 800 crore along with penal interest of Rs 600 crore, a person aware of the talks said. In return for an assurance that the payment will be made by October end, the fund has paused litigation for three months, the person said.
Davidson Kempner did not respond to ET’s queries.
In August, Davidson Kempner had started reconstituting the board of AESL, inducting four new independent and nominee directors in the company in an effort to turn it around and improve governance.