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What's Fueling M&A Activity in Edtech The variety of business models within edtech makes the sector attractive for M&A, in order to grow and survive in present times, say experts.

By S Shanthi

Opinions expressed by Entrepreneur contributors are their own.

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Most business models within edtech have been finding it tough to scale after the pandemic with some exceptions such as study-abroad and upskilling startups that seem to have cracked the Indian market.

In fact, up until the pandemic, Byju's was the only unicorn in the edtech sector. The pandemic boom, however, was considered a natural correction that was waiting to happen. Many startups raised several rounds of funding in over two years that Covid-19 lasted. Venture capital investments in India's edtech sector increased 32 times from 500 million in 2010 to 16.1 billion in 2022.

However, the Covid tailwind for the sector busted as soon as schools and colleges reopened. With this, the segment witnessed significant (Mergers and Acquisitions) M&A activity.

Here are the sub-segments that have seen notable acquisitions:

  • Online course platforms that offer a wide range of courses across subjects and disciplines
  • Test preparation startups and platforms, especially those catering to competitive exams, college admissions tests, or professional certifications
  • Language learning platforms
  • Skill development and vocational training startups and startups offering supplementary education solutions, such as online tutoring, homework help, or personalized learning tools LMS platforms used by educational institutions to manage and deliver online courses, assessments, and content

Mergers and Acquisitions in edtech

M&As seem to happen more often in India's edtech space than in other sectors. Why so? Is M&A the only way out of shutting down for many edtech startups? We asked experts.

According to Somdutta Singh, founder and CEO, Assiduus Global and LP angel investor in marquee funds, "The market potential for the sector has been attracting both domestic and international players, leading to increased M&A activity. While the Indian edtech sector is fragmented, with numerous startups and companies operating in various niches, M&As offer a strategic approach for companies to consolidate their position, expand their market share, and eliminate competition."

She also added that M&As, not just for the edtech sector, enable startups to quickly gain access to a wider customer base, technology, talent, or content. "Also, bear in mind that the edtech sector in India has been attracting significant investments from venture capital firms, private equity funds, and corporate entities. M&A activities often serve as an exit strategy for early-stage investors, allowing them to realize returns on their investments," she said.

The reasons behind rampant M&A activity in edtech as compared to other sectors are many. "The edtech companies usually are not able to scale up after reaching a certain revenue majority of them may be 80 percent or so get stuck around revenue of 100 Crore per annum and the only way for them to scale up is through a merger or an acquisition. With funds drying out in present times in VC space due to various reasons majority of edtech are stuck for scalability or survival," said Milan Sharma, founder and CEO, 35North Ventures.

The edtech space has got a lot of subsets like online, hybrid or offline and under these, there are many sub-categories. While some edtech startups are catering to k12, others are catering to colleges etc. This variety of sub-sectors also makes edtech attractive for M&A for growth and survival in present times, say experts.

Is there any other way out?

Experts do not think M&A is the only way out for edtech startups to avoid shutting down. VCs share several key things startups can consider before taking the M&A route.

Pivoting to different business models or repositioning yourself in the market to address changing needs or gaps is one way out. "This may involve altering their target audience, offering new products or services, or focusing on a different geographic market, but by adapting to market demands, startups can potentially turn their fortunes around," said Singh.

Startups can also collaborate with strategic partners who can provide them with access to resources, expertise, and distribution channels. For example, by forming partnerships with established educational institutions, corporate entities, or other players in the edtech ecosystem, startups can leverage their strengths and scale their operations.

Third, they can focus on optimizing costs and improving operational efficiency, said Singh. "This involves scrutinizing expenses, streamlining processes, and making strategic decisions to reduce overheads. Math is simple, by operating lean and efficiently, startups can conserve resources, increase profitability, and potentially overcome financial challenges," she added.

S Shanthi

Former Senior Assistant Editor

Shanthi specializes in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. 

 

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