India's Byju's Eyes Chegg or 2U as It Weighs US Acquisition

Byju’s, an India online education startup, is in discussions to acquire a US target and likely to bid for either Chegg Inc. or 2U Inc., according to people familiar with the matter. 

The Bangalore-based company has held talks with both Santa Clara, California-based Chegg and Lanham, Maryland-based 2U and the total value of a deal could be about $2 billion, said the people, who asked not to be named because of the sensitive nature of the negotiations. Chegg’s market value was $2.3 billion as of Friday’s close, while 2U had a market value of $756 million and more than $1 billion in debt and other liabilities.

Byju’s and its bankers are evaluating the financials of the two companies and aim to make an offer in the coming weeks, said one of the people. They have yet to agree on any final price and it’s possible no deal will ultimately materialize, the people said.

Byju’s declined to comment, while Chegg and 2U didn’t respond to requests for comment.

Chegg closed 2.9% higher Monday after rising as much as 12%, while 2U finished up 6.8% after climbing as much as 24%.

Byju’s, one of the world’s most valuable startups with backing from Tiger Global Management and Mark Zuckerberg’s Chan Zuckerberg Initiative, is seeking to capitalize on a worldwide market rout and build its business through acquisitions, one of the people said. Both Chegg and 2U have seen their shares tumble more than 75% from July through Friday’s market close.

The Indian education pioneer is the country’s most valuable startup, with a valuation of $22 billion, according to the market researcher CB Insights. Its backers also include Silver Lake Management, Naspers Ltd., and Mary Meeker’s Bond Capital. 

Byju’s, whose parent company is and formally known as Think & Learn Pvt, has already lined up conditional debt commitments of more than $1 billion to finance the acquisition from banks including Morgan Stanley and JPMorgan Chase & Co. and Goldman Sachs Group Inc. said the people. Representatives for the banks declined to comment.

Bloomberg News reported last week that the company was in talks with lenders to raise more than $1 billion in acquisition financing. 

Byju’s, founded by former teacher Byju Raveendran in 2015, has already been leading a consolidation wave in online education. In the past year, it bought the US reading platform Epic for $500 million, the Singaporean service Great Learning for $600 million, the US coding site Tynker for $200 million and Austria’s mathematics operator GeoGebra for about $100 million. 

“We are seizing an opportunity to create a very large edtech company for the world,” Raveendran told Bloomberg News last year.

A deal for Chegg or 2U would further turbocharge Byju’s growth by giving it access to tens of millions of students in the lucrative higher education segment. 

Founded by a group of Iowa State University students in 2005, Chegg started out as a low-price textbook rental service for college students. It then raised $187 million in an initial public offering in 2013 and pivoted to online coursework and tutoring.

Chegg was among a crop of pandemic-era darlings from Peloton Interactive Inc. to Zoom Video Communications Inc. that surged in 2020 after investors bet on fundamental changes to consumer behavior. But the edtech firm, which competes with Coursera Inc., cratered in 2021 after enrollments shrank and US economic growth sputtered, prompting Chegg to cut its revenue forecast and warn about an uncertain growth outlook.

2U, founded in 2008, is the parent of online learning platform edX. The company supplies universities around the world with tools to design and provide e-learning curricula. 

Byju’s has also been plotting its own route to the public markets. The Indian edtech startup has been in conversation with multiple special purpose acquisition companies, or SPACs, about a possible U.S. listing, which is still under consideration, the people said.