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Upgrad Education in Advanced Talks to Acquire Udacity, Seeks $100M Funding for Deal

Upgrad Education, led by Ronnie Screwvala, is reportedly in advanced discussions to acquire US-based online education firm Udacity.

As part of this deal, Upgrad is also engaging with investors to raise up to $100 million, with approximately 80% earmarked for financing the acquisition. Screwvala, who owns 22.4% of Upgrad, is expected to invest personal capital in the investment round, which the company has pitched to external investors for around $50-60 million. The remaining funds are likely to come from existing investors like Temasek.

While the exact terms of the new funding round are still being finalized, Upgrad's valuation is not expected to see a significant increase from its last assessment of $2.5 billion. The acquisition of Udacity is anticipated to be finalized for about $80 million, slightly lower than the earlier discussed value of $100 million. Upgrad aims to complete the acquisition in the current financial year, and the financing is intricately linked to the Udacity deal.

Upgrad has been exploring international assets to augment revenue and enhance its offerings in the reskilling space. The company's interest in Udacity began last year, and the due diligence process is reportedly at an advanced stage. The new financing is seen as a strategic move tied to the Udacity acquisition. Upgrad has actively sought opportunities for inorganic growth, and the Udacity deal aligns with its expansion strategy.

The company's focus on reskilling and online education has gained prominence, particularly in a landscape where the edtech sector faced challenges in 2023, exemplified by issues at Byju's that impacted investor sentiment.

The Udacity deal reflects a broader trend in the global edtech landscape, where companies are reassessing valuations. Upgrad's emphasis on revenue growth and a clear path to profitability positions it well in the current scenario. The company aims to secure a flat valuation deal, considering that firms demonstrating strong revenue growth and profitability are receiving minor premiums to their last valuation. Upgrad, founded in 2015, has raised $365 million to date, with its most recent funding coming through a $36.4 million rights issue in March 2023. Among its investors is Bodhi Tree, a joint venture of James Murdoch and former Star India chairman Uday Shankar.

In the financial year ended March 2023, Upgrad reported a 96% rise in revenue to Rs 1,194 crore, with losses increasing by 67% to Rs 1,142 crore.

Udacity, based in California, offers courses across various domains, including data engineering, business analytics, artificial intelligence, data science, and product management. It caters to individuals, government, and enterprise sectors. While the enterprise business is Udacity's largest revenue driver, retaining customers has posed a challenge. Udacity was last valued at $1 billion in 2015 and counts investors like Bertelsmann and Baillie Gifford, along with a16z (Andreessen Horowitz). The company was founded by Sebastian Thrun, known for his work at Google X on projects like self-driving cars and Google Glass. The acquisition of Udacity is expected to bolster Upgrad's global presence and offerings in the rapidly evolving online education landscape, and it aligns with the company's pursuit of both organic and inorganic expansion.


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