upgrad udacity deal: Upgrad in talks to buy majority stake in US edtech firm Udacity

Higher education and upskilling focussed edtech Upgrad is in talks to acquire US-based Udacity, sources told ET. Udacity, which has been on the block for a few months now, is talking about selling a majority stake in the company through an equity swap.

Udacity may currently be valued at over $100 million. It had earlier quoted about $200 million to an earlier suitor, but the prospect had passed.

“Talks are moving at a fairly good pace and the valuation being looked at is around $100-120 million, which is about 10-12 times its ebitda’’, the sources added.

According to another source — who had reviewed the sale proposal earlier —Udacity had a revenue of around $100 million, but has been struggling with its (customer) retention rate of about 70%. Also, its B2C business has been struggling, with 70-75% of the revenues coming from enterprise clients. “If retention is dropping then it may not justify the price in the long run, even if it’s through an equity swap’’, he added.

A spokesperson for Udacity said it won’t comment on market speculation. Ronnie Screwvala, founder and chairperson at Upgrad said, “We deny this. We are a private company and do not need to clarify our plans in the media. We continue to have conversations with companies around the world for potential acquisitions, and at the right time, will share developments as we choose to’’.

Value erosion

Udacity — started by Sebastian Thrun in 2011 — was last valued at $1 billion in 2015 after raising $105 million from investors such as Germany’s Bertelsmann, Scotland’s Baillie Gifford, and others. Thrun is also the founder of Google X, where he worked on ideas like self-driving cars, Google Glass, and more. “Udacity’s operations have shrunk significantly, and thus they’re now willing to sell. This would be at a major erosion in value compared to what the unicorn was at its peak,” a source told ET.Udacity counts Silicon Valley’s Andreessen Horowitz, also known as a16z, among its investors. It has raised about $238 million in total, according to Tracxn — a business intelligence platform.

The California-based learning platform offers courses in data engineering, business analytics, artificial intelligence, data science, product management, etc. It has three key verticals — consumer, government, and enterprise.

Mumbai-based Upgrad has been on the lookout for deals to double down on its offering in the upskilling space as the K-12 segment in India has seen Covid-induced tailwinds vamoose. This has led to steady demand for edtech focussed on higher education and upskilling.

“The deal will add some revenues to Upgrad. This is a good time for buyouts and assets are available at better prices in the US than India’’, one of the sources added.

Between 2020-2022, Upgrad has acquired 10 companies, including two in the recruitment space — Wolves India and Rekrut India.

In a rights issue in March this year, the company raised $36.4 million from Singapore’s Temasek, Screwvala, and other minority shareholders. Prior to that, a report from Bloomberg in June last year said it had raised $225 million in a new round, valuing it at $2.25 billion. Its executives had said that some of the new capital would be used for acquisitions.

According to data from Tracxn, Upgrad has raised $600 million since its inception in 2015. Bodhi Tree (a joint venture of James Murdoch and former Star India chairman Uday Shankar) has also invested in the firm, ET had reported in August last year.

In March, Upgrad co-founder and MD Mayank Kumar had told ET that the firm may grow about 80% in FY22-23. Its operating revenues had gone up 108%, to about Rs 679 crore, in FY21-22, on a loss of Rs 626.6 crore. Kumar had said that with offices re-opening, professionals would be short on time, hence edtech firms offering upskilling courses have to work hard to prove their product proposition, so that employees can easily prioritise which courses they want to take.

Upgrad has offices in the US, UK, Singapore, Vietnam, and Middle East, and offers courses on skilling, short certification courses, bootcamps, job-linked programmes, as well as foreign degrees. It has around 300 global university partners, and the company claims to have taught over 7 million candidates in more than 100 countries.

Edtechs and Byju’s

The potential deal comes at a time when Byju’s — India’s largest edtech as well as the most valued startup — is mired in a morass of issues like corporate governance and financials.

Byju’s, as well as firms like Unacademy, Vedantu, and others have also been facing heat in their K-12 business and are relying on offline centres to drive the majority of their revenues. For Byju’s, its Aakash acquisition in 2021 turned out to be the great silver lining as other verticals slowed down.

The Bengaluru-based firm was looking at large potential acquisitions in the US, including the likes of 2U, but those did not materialise, besides Byju’s had to focus on more pressing issues back home in India.