Byju’s aims for SPAC merger agreement within a month

India’s most valuable startup, the online education provider Byju’s, is in negotiations with at least three special-purpose acquisition companies and is aiming to unveil plans to go public via a merger with one of them in three to four weeks, according to people familiar with the matter.

The SPACs include Michael Klein’s Churchill Capital and Michael Dell’s MSD Acquisition Corp., names that Bloomberg News has previously reported. An additional contender is Harry Sloan, a long-time Hollywood executive who has since become a prolific SPAC investor, said the people, asking not to be identified because the talks are confidential. A fourth, Altimeter Capital Management, is conducting due diligence ahead of any potential offer, the people said.

Byju’s, last valued at $21 billion (Rs 1.56 lakh crore approx), is leaning toward a SPAC merger instead of a traditional initial public offering because it sees value in having US investors and strategic partners, the people said. Unlisted Indian companies are currently forbidden from going public directly on foreign stock exchanges.

In addition, Byju’s is exploring the option of raising a pre-IPO funding round of about $750 million (Rs 5,600 crore) to $1 billion (Rs 7,474 crore), the people said. Goldman Sachs Group Inc. is advising the startup on fundraising and the SPAC talks, while Morgan Stanley is helping weigh SPAC options, the people said.

Byju’s and Goldman Sachs declined to comment. Representatives of Morgan Stanley and Sloan’s Screaming Eagle Acquisition Corp. didn’t respond to emails seeking comment.

One wild card is India’s government. Narendra Modi’s administration will present its budget Tuesday morning in New Delhi, and local media reported that some companies have lobbied for a relaxation in regulations that prohibit domestic companies like Byju’s from directly listing on foreign exchanges. If those rules are changed, Byju’s would reconsider the SPAC merger plans and revisit the idea of an IPO, perhaps with a dual listing in the US and India.

If it proceeds with a SPAC deal as expected, Byju’s is still eyeing a listing in mid-2022, the people said. Several factors could affect that timing though, including sharp declines in tech stocks in India and the US It’s possible Byju’s would delay or even shelve plans to go public if the market turmoil accelerates.

Bloomberg News reported in December that Byju’s, under preliminary terms discussed, would raise about $4 billion (Rs 29,900 crore approx.) and seek a valuation of about $48 billion (Rs 3.58 lakh crore approx). While SPAC suitors have continued to discuss similar terms, market volatility has added to the uncertainty of any specific target.

Klein and the Churchill Capital team presented their offer to the Byju’s board this month and met with Byju’s negotiators in Dubai, one of the people said. Laurene Powell Jobs, wife of the late Apple Inc. co-founder Steve Jobs, was a virtual participant in the meeting and may join Klein’s bid, the person said. She has a long-standing interest in education and founded an after-school program 25 years ago to prepare underprivileged high school students for college.

Klein is said to have offered to invest $500 million (Rs 3,736 crore approx) into the SPAC’s PIPE, or private investment in public equity, alongside investments from Sam Altman of Y Combinator and Sal Khan of Khan Academy, the person said. There have also been conversations about building distribution relationships in the US with Apple and Microsoft Corp. if Byju’s teams up with Churchill.

The competing SPACs have been aggressive. MSD is offering a valuation of $45 billion ( Rs 3.36 lakh crore) to $52 billion (Rs 3.88 lakh crore), with a 36-month lock-in on promoter shares, the person said. The Sloan team said they would match or exceed other offers during talks last week.

SPACs are shell companies set up by their sponsors to hunt and acquire businesses and take them public through a merger. They have come under fire recently from US regulators, tempering the velocity of fundraising.

Byju’s sees a US-traded stock as a valuable currency to quicken its acquisition strategy. The company sees an opening in the market as Covid-19 restrictions boost demand for online education while China-based rivals have been hit by government clampdowns.

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