Edtech firm upGrad’s long-running talks to acquire rival Unacademy— which fell through in January over valuation differences—are back on track, with co-founder Ronnie Screwvala saying the two sides have signed a term sheet for an all-stock deal.
The surprise, however, was his public disclosure of a break fee—an unusual detail for a co-founder to reveal before a transaction has closed. While break fees are common in large merger and acquisition (M&A) transactions, they are rarely flagged so openly at the term-sheet stage.
as the proposed deal is a 100% share swap, meaning Unacademy’s investors may receive upGrad stock instead of immediate liquidity, with the valuation to be made public only at closing.
Mint has learnt from people familiar with the matter that the break-fee clause will apply to both sides, though Mint could not independently verify the exact triggers in the term sheet.
Mint explains what Screwvala’s public reference means for the proposed upGrad-Unacademy deal.
How have the talks progressed?
Unacademy, founded in 2015, surged during the covid-19 pandemic to a $3.5 billion valuation in 2021, raising about $880 million from marquee investors to date. But the post-edtech-boom funding slump and hit the sector, weakening its position in talks with upGrad, which valued it at $300-400 million. Talks collapsed in January, making Screwvala’s disclosure of resumed negotiations and a break fee significant.
“We at upGrad have signed a term sheet to acquire Unacademy in an all-stock deal,” said Screwvala in his post on X, and added, “We have also agreed to a break fee were we not close.” Unacademy founder and chief executive Gaurav Munjal, in a separate post, said the transaction would be executed through a 100% share swap and that the valuation would be disclosed only at closing, once the papers are filed.
Why does the clause matter for Unacademy’s investors?
The break-fee clause matters because it adds a cost to abandoning the deal at a time when Unacademy’s investors are staring at a share swap rather than immediate liquidity, according to legal experts, former employees at rival edtech firms, and investors in that Mint spoke with.
In that sense, the provision is as much a signal of commitment as it is a legal safeguard, especially for stakeholders hoping the transaction finally delivers an exit path after a steep reset in valuation.
Tejbir Singh, founder and managing partner at T&R Law Offices, said the all-stock structure makes the proposed upGrad-Unacademy deal especially complicated for Unacademy’s investors. “There is no money that is moving,” Singh said, noting that the share-swap transaction gives investors no immediate liquidity and instead asks them to exchange into upGrad equity in the hope of future value creation, including through a possible initial public offering.
Singh said the bigger complication lies in Unacademy’s investor rights, especially liquidation preference, in a deal likely to be struck at a steep markdown to its peak valuation.
“The (Unacademy) stakeholders will have a liquidation preference clause in their favour,” he said, adding that if those rights are enforced in full, “the entire shareholding will have to go to these investors only and Munjal and everybody else who does not have a liquidation preference gets nothing”.
That concern had also surfaced earlier in Unacademy’s own communication to employees. In December, Munjal said the company was in discussions for an all-stock M&A deal at a valuation well below the more than $800 million Unacademy had raised, and warned that shareholders could invoke liquidation preference in such a scenario. He added that if liquidation preference were fully enforced, employee stock ownership plans (ESOPs) could effectively become worthless.
Put simply, if investors who have put in about $800 million insist on even a 1x preference in a deal valued at $300-400 million, founders and common shareholders could be left with little or nothing unless those terms are softened.
Singh also linked Unacademy’s recent ESOP buyback to deal execution, saying it appeared aimed at cleaning up the cap table before a share swap while signalling that employees were being treated fairly.
Why is the public disclosure unusual?
Break-fee clauses are not yet widely prevalent in Indian private startup and internet M&A, though they are customary in transactions in the US and Europe, Hardeep Sachdeva, senior partner at AZB & Partners, said.
That is what makes Screwvala’s disclosure stand out. “What is unusual here is the public disclosure of the clause before definitive agreements are signed,” said Ashima Obhan, senior partner at Obhan Mason.
Obhan said the market should treat the upGrad-Unacademy transaction as “a serious commercial understanding with some limited binding elements, but not yet a final transaction”.
From an investor perspective, she added, the public disclosure itself could reassure stakeholders about deal certainty by signalling that both sides were willing to make real commitments before closing.
Alay Razvi, managing partner at Accord Juris, said the clause appears to be a negotiated mutual break fee rather than a classic one-way break fee. He added that such clauses can compensate the other side for time spent, due diligence costs and opportunity loss, but are generally enforceable only if the triggers are clear and the amount is reasonable rather than punitive.
While upGrad declined to comment, Munjal hasn’t responded to Mint‘s emailed queries.