Business Law

Mergers and Acquisitions by Unacademy

By Pratibha Chandiramani & Aditya Balaji

Introduction 

Unacademy is an EdTech company which was initially started as a YouTube channel in 2010 and later in 2015 it was registered as an education company in Bengaluru. The company provides study material for entrance test examinations and various other professional courses. It offers online classes, both free and via subscription I.e., paid. Over the years, the number of users and mentors on the platform have increased exceedingly. The company has consistently acquired a number of platforms providing similar services especially after the pandemic since online learning gained a boost. It has also secured huge investments in the past years. As of August 2021, the number of acquisitions made by Unacademy is 10. The occurrence of covid-19 had a huge impact on the EdTech sector wherein learning institutes adopted technology-based solutions. From 2019 to 2020 the EdTech user base increased from 45 million to 90 million users. 

As per the previous valuation, Unacademy was worth $510 million (51 crore rupees). Its subscriber base went from 100,000 to a whopping 200,000 users in just three months. For its free online classes program, it has around five million monthly users. It has earned Rs 11.66 crore in revenue from operations. It received huge fundings from multinational companies as well. These investors include Nexus Venture Partners, Blume Ventures, Facebook, General Atlantic. General Atlantic invested $100 million dollars while Facebook invested around $110 Million dollars. Individual investors like Sujeet Kumar, co-founder, Udaan and Kalyan Krishnamurthy, CEO, Flipkart have also invested in the company. In August 2021, the valuation of the company stood at $3.44 billion which is around 300 crore rupees. It raised $440 million in its latest funding held in August this year.

Mergers and Acquisitions

Mergers and Acquisitions are an ever-growing business trend, with more and more of them happening with every passing year. The constant capitalistic expansion has seen various businesses pop up and some shine brighter than others. Mergers and acquisitions are ways for businesses to expand, and for some it is a way to make more money or to get out of liabilities. These mergers allow corporations to strengthen their position in a sector or can sometimes allow them to enter into a new sector by merging with a company of a different sector or acquiring them. This, in turn, also allows them access to more assets and at the same time brings in more liabilities to them. When you get the good, you also get the bad.  There are however various economic implications to it, however, and they are very important to consider in order to ensure that the consumers get what they want at the right price and that a healthy competition exists between businesses. 

Unacademy by virtue of entering into various mergers and acquisition deals over the last year has expanded its market share in the Edutech sector. Business environment is equally important as well and factoring the pandemic that the country is facing makes it more viable for an online education platform such as themselves to capitalize on various prospects which help strengthen their business. Their rate of growth is phenomenal, and the investments that are being received by them are a testament to their strong business model. Their pre covid business estimate was around $400 Million, whereas around September 2020 it was $1.45 Billion and even more now. A feat achieved as a result of said investments and mergers and acquisition deals. Their deals allowed them to expand into various different ventures within the EdTech

Acquisitions by Unacademy 

As of August 2021, Unacademy has acquired 10 companies. The distinct feature of the companies acquired by unacademy is that they offer distinctively varied services. These acquisitions helped unacademy to expand its market in almost all educational fields. The company has expanded its market into numerous fields like CA, CAPF, UPSC, CLAT, CAT, JEE, banking Pre-Medica, etc. Many startups have been acquired by the company for its advantage yet the company has constantly aimed at providing quality learning education to the learners in India at affordable price. 

  • Wifistudy 

The first organization that was acquired by Unacademy was Wifistudy in the year 2018. Wifistudy is a YouTube channel based in Jaipur. It offers exam preparation online. When the organization was acquired by Unacademy, its user base was 4.5 million subscribers. At the time of acquisition, Wifistudy had seventy million monthly viewers however after its acquisition, it gained more than 200 million monthly viewers on its videos. Wifistudy primarily focuses on providing exam preparation tips, strategy, syllabus, and pattern to students who desire to appear for competitive exams such as SSC, banking, railway and state police. With the acquisition of Wifistudy, unacademy was able to venture into the field of public-sector exams. 

  • Kreatryx

The next acquisition by unacademy was a startup Kreatryx, which again offers services for preparing for multiple entrance exams including EE/ECE GATE. Kreatryx was founded in 2014 and acquired by Unacademy in March 2020. The company is focused on providing online content like videos, test series and it is a postal tracking platform. The distinct feature about Kreatryx is it provides an opportunity to learners to discuss their doubts among themselves and helps to connect the aspirants with the toppers of respective exams. Thus, acquisition of Kreatryx helped unacademy to expand its market in GATE and EE/ECE test preparation services. Even though unacademy has acquired the startup, the company continues to work as an independent brand under the Unacademy branch. Presently, the number of users has increased to fifty thousand with over one lakh hours of watched videos. 

  • CodeChef

CodeChef, a platform for students aspiring to become programmers, was founded in 2009 and acquired by Unacademy in June 2020. Acquisition of CodeChef helped Unacademy to venture into the coding and programming field. The company mainly provides programmers an opportunity to improve their coding and problem-solving skills by arranging multiple contests providing training, conducting discussions and tutorials on binary search and algorithms. It also helps organizations connect with programmers. 

  • Prepladder

Prepladder was acquired by Unacademy through a cash and stock deal for $50 million (Rs 374 crore) in July 2020. The main objective of acquiring Prepladder was to venture into the medical entrance examination online preparation field. The company was founded in 2015 and has been providing material for medical PG and Foreign Medical Graduates Examination such as NEET, PG and FMGE. The entity has about 86,000 active subscribers. 

  • Mastree 

Mastree is a Bangalore-based startup company founded in 2019 and acquired by Unacademy in July 2020 for USD 5 Million (around INR 36 crores). Mastree was the first K12 learning organization acquired by Unacademy. With its acquisition, it aimed at widening its presence among students of Classes V to VIII. The company offers a subscription-based model for STEAM courses, Science, Technology, Engineering, Arts and Mathematics. Mastree focuses on providing affordable and quality education along with unlimited personalized practice, quizzes, etc. 

  • Coursavy

Coursavy was founded in 2019 for providing affordable educational online content to UPSC aspirants. It was acquired by Unacademy in September 2020 however the amount of purchase was not disclosed. Through this acquisition, Unacademy has been able to broaden its services in the UPSC test prep market. The platform offers live interactions between students and teachers, revision sessions, quizzes and query resolution. Presently, its YouTube channel has about 67k subscribers. 

  • NeoStencil 

NeoStencil was founded in 2015 for providing services for exam preparation for government jobs. It mainly focuses on preparing students desiring to appear for UPSC exams, government jobs, judiciary exams, IIT- JEE/NEET, IAS, etc. It offers about 590+ courses. It was acquired by Unacademy in December 2020 for providing quality education to students residing in remote areas. The organization has a user base of over 40 lakhs and about 15,000 students via paid subscriptions. 

  • TapChief

The first acquisition made by Unacademy in 2021 was Tapchief acquired in February. Unacademy picked up a majority stake in tapchief with a valuation at 100 crore rupees even though the deal value was not disclosed. TapChief is an online platform that facilitates professionals without full-time jobs to earn income. The main objective of acquisition was to build a platform which helps professionals to acquire a secure job of their own choice. It has helped people accrue about 20 crore rupees in income till now and has more than 150,000 registered professionals. It also helps individuals to learn, network and obtain short-term projects.  

  • Handa Ka Funda

Ravi Handa, the owner of Handa ka Funda founded the company back in 2012 for CAT examination preparation and is renowned for helping students crack the MBA entrance exams like CAT, XAT, IIFT, etc. It also offers online courses related to banking. The company was acquired by Unacademy in May 2021 which also debuted Unacademy’s entry into the business-related examination field. At the time of acquisition, the website had a network of 20,000 students. The owner Ravi Handa continues to work under the Unacademy branch as a mentor.

  • Rheo TV 

The latest acquisition undertaken by Unacademy was of a startup company Rheo TV, a live game streaming platform founded in 2019. The acquisition was announced in July 2021. Unacademy will acquire the company in its entirety and enable the exit of all existing investors. The platform provides an opportunity to professional streamers to livestream their gameplay. Within a year of launch, the platform gained more than 5 million users and over 10,000 live streamers. Acquisition of Rheo TV has enabled Unacademy to venture into the online gaming platform. 

Implications of Mergers and Acquisitions

 But all this brings us to the question whether this restricts the growth of smaller companies because of the acquisitions. Acquisitions usually involve a bigger company absorbing a smaller company. This only indicates that the bigger companies are like sharks in the sea that eat up the smaller fishes. Such business behaviors can make it hard for smaller start-ups to thrive and grow bigger. Effectively ensuring a monopoly and hampering competitiveness in the market. Competition is important as it promotes businesses to price their products fairly and to keep innovating. A lack of that as a result of one big company monopolizing gives too much power to them resulting in the control of prices. Pricing works on the concepts of supply and demand and a product being priced based on the intersecting points of both the demand and supply curves. However, this theory is on the assumption that there exists competition in the market. In case of a monopoly, this is not true as there is no option of alternatives. A prime example of such growing market share to the point of monopoly is that of Amazon. Amazon has around 50% control in the field of retail which gives them enough power to control the market in this field. Furthermore, Amazon is a company that is now involved in various fields. Their expansion into more sectors makes it harder for smaller companies to grow out and break the mold. The competition strictly remains between the big companies. Such can be the potential impact of Unacademy or any of its rivals if their growth is not controlled and regulated.

Acquisition and Merger under Companies Act, 2013

Section 230 to 240 of the Companies Act, 2013 deals with compromise, arrangements, mergers, amalgamations, Corporate Debt Restructuring, demergers, foreign company mergers, takeovers, public interest company mergers/amalgamations, etc. For any such procedures, an application in prescribed format is to be made to National Company Law Tribunal (NCLT).  

Section 232 of the aforementioned act deals with compromise or arrangements made for reconstruction of the company or companies involving merger or amalgamation of any two or more companies. It governs the transfer of property or liability entirely or partially of a company I.e., transferor to another company I.e., transferee. In the case of the above acquisitions, Unacademy performs the role of transferee company. The report of the expert with regard to valuation of the transferor company is also drawn up. For e.gUnacademy acquired Mas Tree for 36 crore rupees while it acquired Prepladder for 363 Crore rupees. If the transferee company has shares or debentures, it may also be transferred to the Transferor company. However, transfer of shares or debentures was not disclosed in any of the cases of acquisition by Unacademy. 

If shareholders of the transferor company decide to opt out of the transferee company, payment of the value of shares held by them must be made to them after valuation. In case of acquisition of TapChief, Unacademy acquired majority stakes and ascribed the company’s valuation at 100 crore rupees and subsequently enabled the exit of existing investors. Even Rheo TV was fully acquired by Unacademy and other investors were allowed to exit; however, the valuation amount was not disclosed. Liabilities of the transferor company may also be transferred to the transferee company under this act. 

As per the provisions of section 232, there are two kinds of mergers- merger by absorption and merger by formation. A Merger by absorption refers to merging of property, liabilities, assets, rights of a transferor company to an already existing company. While a merger by formation refers to merging of a transferor company to a new company. According to these rules, all the acquisitions conducted by Unacademy would be termed as merger by absorption as the companies were transferred to another existing company I.e., Unacademy. The act also administers the transfer of the employees of the transferor company to the transferee company. In a number of Unacademy acquisitions, the founders, CEO or mentors of the acquired companies also joined Unacademy and continued to work under the acquired company’s name. 

Section 233 of the Companies Act, 2013 deals with fast-track mergers. It governs mergers of small and subsidiary companies. Definition of small company and subsidiary company is explained in Section 2(85) and 2(87) of the Companies Act respectively. The act necessitates each of the companies involved in the merger to file a declaration of solvency. Any amount unpaid by the transferor company in case of purchase of shares held by the dissenting shareholders or settlement of debt due to dissenting creditors, shall become the liability of the transferee company. Under the Indian Income tax Act, in case of merger or acquisition, the transferee firm, either Indian or foreign, can be eligible for certain tax exemptions from the capital profits during the transfers of shares. 

Competition Act (2002)

In order to ensure that the competition in the market remains healthy and that there is no misuse of power, there exists the Competition Act (2002) which replaced the Monopolistic and Restrictive Trade Practices Act or MRTP Act of 1969. The aim of the act as already mentioned is to ensure healthy competition in the market which is critical in the functioning of the economy and in order to protect consumers. 

Section 3 of the Act refers to Anti-competitive practices of companies. Any agreement by a company that affects any of the business activities of production, supply, storage, distribution, etc. which gives them control over the products that can have a detrimental effect on the market and the economy is banned and therefore void if any such agreements take place. This is in reference to any agreement that can potentially allow a company to control the market price of a product and would thus be unfair.  

Section 4 of the Act talks about abuse of power when in a dominant position. Companies who are in a dominant position according to the act should not use their power by resorting to trade practices that can make it harder for other enterprises to enter into the market or thrive in the market. For example, having very low prices to undercut competitors and therefore making it hard for them to conduct business or use their power to deny entry for others into the market.

These two sections are very important in Unacademy’s context as it lays down what obligation that the company has now that it is growing at a very fast pace and is one of India’s biggest contributors in the EdTech sector. Their absorption of various companies could be seen by some as an abuse of power which gives them more power and therefore making it less conducive for smaller enterprises to grow.

Section 6 of the Act deals with mergers and acquisitions and states that any such deals which seek to have an adverse impact on the economy will be void. The mergers and acquisitions are subject to an approval of a commission where companies have to disclose details within 30 days and that the deal will not go through until 210 days have passed.  

Section 20 states about the inquiry that the commission has to undertake in the events of mergers and acquisitions and Section 20(4) deals with various factors that are considered when asking the question if this acquisition can impact the economy. 

Unacademy’s growing strength and size is definitely something that needs to be closely monitored. It would be safe to assume that they are a leading enterprise with a responsibility to ensure that they don’t misuse their power in order to bully competitors out of the market or make it non-conducive for growth of smaller companies in the market. Such laws established by the Competition Act seek to ensure that such an event does not take place and ensure that the market is safe and filled with healthy competition. So far EdTech sector only generates about $1 billion in revenues out of the total of $135 Billion dollars that the education sector consists of, which means there is an opportunity for more growth in the sector and so far, everything seems to be healthy and is filled with unbridled potential now that globally education has been shifting towards digitization. 

Conclusion 

Since the foundation of Unacademy, it has strived to acquire monopoly in the competitive exam space. Time after time, it acquired a number of companies that offered distinct services and widened its presence in different fields, be it government job examinations, medical exams, judicial exams, elementary school education, providing jobs and even online gaming. The reason why it has created such an ideal position in the EdTech market is because it caters to numerous needs which very few other companies are able to do. Many companies acquired by Unacademy till now already had a strong user base which facilitated Unacademy to expand its market and improve its learning content. The EdTech company has been successful in receiving huge fundings from multinational companies as well due its sharp progress. The Academy’s website claims that it has more 3.2 billion watched minutes and conducts 1.5k live classes every day. Because of multiple acquisitions, Unacademy presently caters to more than 60 exam categories. The company’s YouTube channel has over 720k subscribers. Unacademy is constantly striving to bring in innovative learning options with its main focus on providing enabling students to learn from top educators. The 2019 EdTech funding statistics indicates investors are continually investing in EdTech companies that focus mainly on online test preparation and skill development. 


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