Mint Explainer | Why upGrad’s Unacademy deal is more about balance sheet than classrooms

money control He was the first to report the development and said the two companies expected to sign the deal within the next three weeks. The deal will value Unacademy at approximately $300-400 million ( ₹2,500-3,300 crore as per the report). The company was last valued at around $3.4 billion (approx. ₹28,000 crore in its private financing in 2021.

While this deal potentially gives up Grad’s foray into test prep, the company’s interest in Unacademy may have less to do with its students. Mint reveals the potential deal between the two companies and what it means for the edtech industry.

Why did upGrad leave its own arena to reach Unacademy?

Temasek-backed Grad follows Unacademy ₹It is piling up 1,000-1,200 crore cash to shore up its own capital base without raising a fresh round of priced funding at a time when investors are skeptical of valuations in edtech. “Cash is very valuable for edtech companies, which are struggling to raise outside capital in today’s world,” said a person with knowledge of the deal.

While upGrad became operationally profitable, its gross revenue ₹The proposed share swap deal offers a liquidity boost to the Rs 1,650-crore share swap deal with minimal equity dilution, according to a second person with direct knowledge of the matter.

Michelle Solomon Le Page, partner at law firm Solomon & Co, said the structure of a typical share swap deal meant the company had no immediate cash obligations.

“In a pure share swap deal, the acquiring company does not pay cash. Instead, shareholders of the target company exchange their shares for shares in the acquiring company,” he said.

He added that because upGrad would issue new shares rather than use cash or borrow money, it would keep liquidity on its balance sheet, but this could weaken existing shareholders’ ownership. “They will only incur costs such as legal, banking and accounting fees or small payments for fractional shares,” Le Page said.

This acquisition also expands Grad’s positioning; It is transforming into a comprehensive training company, from a pure skills platform to exam preparation and lifelong learning. Signed a business agreement with upGrad ₹500 crore cap and ₹100 crore burning that they can run with the current CEO who will stay in office for at least two to three years,” added a third person with direct knowledge.

This move could also help upGrad achieve a higher valuation in its eventual IPO. The company, which reportedly plans to go public around 2026, could benefit from being priced as a more diversified education player by bankers during pre-IPO rounds and listing, potentially commanding stronger multiples than it does today.

How does Gaurav fuel Munjal’s ambitions?

For Unacademy co-founders Gaurav Munjal and Roman Saini, this could be a much-anticipated deal that could help them break out Airlearn as a separate entity.

The previous plan to release Munjal and Saini was more complex and would take longer, putting Unacademy and investors in a difficult situation. In September, Mint Unacademy’s board has reportedly signed off on a plan for existing shareholders to own half of Airlearn without any cash changing hands.

Munjal and Saini would jointly run Airlearn and raise external capital, effectively exiting Unacademy. But investors instead chose to pursue an outright acquisition and find a new home for Unacademy.

“For Unacademy shareholders, the share swap to Upgrad gives them an honorable exit. While the road to eventual monetization remains rockier, there is a chance for a comeback,” said a fourth person with direct knowledge of the deal.

During edtech’s heyday, Unacademy alone raised $880 million from investors Masayoshi Son’s Softbank, Temasek, Tiger Global, Sequoia Capital and Peak XV Partners. Unacademy last raised funding in a $440 million Series H round in 2022 at a $3.4 billion valuation.

However, as education technologies suffered a post-pandemic downturn, students turned offline, and larger players like Byju collapsed, Unacademy went offline; It was an ill-advised move for Munjal, a tech-first entrepreneur. Saini and Munjal have been trying to get rid of Airlearn, an AI-based language learning company that has been operating under Unacademy ever since.

What’s standing in your way?

Despite the progress, there are still many obstacles to finalizing the agreement.

Multiple past discussions with several edtech players regarding the sale of Unacademy have failed, and people close to the talks warn that it too is still in the negotiation phase.

The term sheet has already been shared and the two parties are discussing key aspects such as the share swap ratio based on a review of upGrad’s valuation and the final shareholding and liquidity structure for Unacademy’s early and late-stage investors. “There are negotiations back and forth and if it is signed within three weeks, the deal will happen,” the third person previously cited said.

Any delay could push the transaction timeline even further, and Unacademy’s investors could be the losers in this deal. “The current valuation is actually lower than the total capital that has gone into the company. Close to $900 million has been invested and according to newspaper reports, the company is currently valued at around $300-400 million,” said Nitin Bhatia, managing director of DC Advisory, who leads the education and fintech practice for the firm.

“So while investors are essentially getting maybe 30-40 cents on the dollar, unless investors show flexibility, founders and management could be completely wiped out due to liquidation preferences and items like that,” Bhatia said. “No matter how much investors recover, a significant portion may come in the form of upGrad shares, not cash.”

Eventually, if the deal goes through, the boundaries of Indian edtech could be redrawn, bringing Unacademy’s test prep team under upGrad’s skill development umbrella and reigniting competition with players like PhysicsWallah.