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

Moneycontrol was the first to report on the development, saying that the two companies expect to sign the deal in the next three weeks. The deal will value Unacademy at about $300-$400 million ( ₹2,500-3,300 crore), as per the report. The company was last valued at around $3.4 billion (around ₹28,000 crore) in its private funding in 2021.

While this deal potentially gives upGrad an entry into test prep, the company’s interest in Unacademy may have less to do with its students. Mint unpacks the potential deal between the two firms and what it means for the edtech sector.

Why upGrad charted out of its own arena to tap Unacademy?

Temasek-backed upGrad is eyeing Unacademy’s ₹1,000-1,200 crore cash pile to shore up its own capital base without raising a new priced funding round, at a time when investors remain sceptical about valuations in edtech. “In today’s world, cash is invaluable for edtech firms that are struggling to raise capital externally," said a person aware of the deal.

While upGrad has turned operationally profitable, posting a gross revenue of ₹1,650 crore, the proposed share-swap deal offers it a liquidity boost with minimal equity dilution, according to a second person, directly aware of the matter.

Michelle Solomon Le Page, partner at law firm Solomon & Co, said a typical share-swap deal structure means the company has no immediate cash obligation.

“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 said.

She added that since upGrad would issue new shares instead of using cash or taking on debt, it would retain liquidity on its balance sheet, though this could dilute the ownership of existing shareholders. “They’d only incur costs like legal, banking, and accounting fees, or minor payments for fractional shares," Le Page said.

The acquisition also broadens upGrad’s positioning — from a pure skilling platform to a full-spectrum education company spanning test prep to lifelong learning. “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 atleast two to three years," a third person in the direct knowledge added.

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

How does it fuel Gaurav Munjal’s ambitions?

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

The earlier plan, where Munjal and Saini were to exit, was more complex and would have taken longer, as it left Unacademy and investors on the lurch. In September, Mint reported that Unacademy’s board had signed off on a plan for existing shareholders to own half of Airlearn, with no cash changing hands.

Munjal and Saini were to jointly run Airlearn and raise external capital, effectively separating from Unacademy. However, investors preferred instead to pursue a full acquisition and find Unacademy a new home.

“For Unacademy shareholders, the share swap into Upgrad gives them an honorable exit. Though the road to eventual monetisation is still further down, there are chances of making returns," a fourth person with direct knowledge of the deal said.

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

However, as edtech experienced a downturn post-pandemic, with learners returning offline and larger players like Byju’s collapsing, Unacademy went offline, a move that did not sit right with Munjal, a tech-first entrepreneur. Saini and Munjal have since been trying to hive off Airlearn, an AI-based language learning company that was incubated under Unacademy.

What stands in the way?

Despite progress, several hurdles remain before the deal can be finalised.

Multiple discussions around Unacademy’s sale have fallen through in the past with many other edtech players, and people close to the talks caution that this one, too, is still in negotiation stages.

The term sheet has already been exchanged, and the two sides are negotiating key aspects, such as the share-swap ratio based on a review of upGrad’s valuation, and the eventual shareholding and liquidity structure for Unacademy’s early- and late-stage investors. “There is some back-and-forth negotiation, and the deal will go through if it’s signed within three weeks," said the third person cited earlier.

Any delay could push the transaction timeline further and the party that stands to lose out in this deal – Unacademy’s 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," said Nitin Bhatia, managing director of DC Advisory, who leads education and fintech practices for the firm.

"So essentially, 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," Bhatia said. “Whatever investors recover, a substantial portion could come in the form of upGrad shares, not cash."

Eventually, if the deal goes through, it could redraw the boundaries of Indian edtech, bringing Unacademy’s test prep muscle under upGrad’s upskilling umbrella, and reigniting competition with players like PhysicsWallah.