IDP Education's (ASX: IEL) market capitalisation surged by almost $1.5 billion today after the Melbourne-based company announced a deal that would absorb a competitor to make it the sole International English Language Testing System (IELTS) distributor in India.
Assisted by a $210 million refinancing of its existing bank facilities, IDP has entered into a binding agreement to acquire 100 per cent of the British Council's Indian IELTS operations for £130 million (AUD$240 million) on a debt-free, cash-free basis.
IDP already administers IELTS tests in India but expects the acquisition will strengthen its leadership position with run-rate synergies of $6-8 million, and earnings per share accretion of 13 per cent.
India is the largest IELTS market globally by volume and has exhibited one of the highest country growth rates in recent years with an historic annual volume growth of approximately 21 per cent in the nine years leading up to the pandemic.
Both companies were affected by the second wave of COVID-19 in India in the fourth quarter, but trading conditions have improved in recent weeks with the progressive lifting of restrictions allowing IDP to recommence testing in most states.
Despite the setbacks to its operations, around 95 per cent of IDP's installed capacity is now available.
"While the pandemic prompted both the British Council and IDP to adapt operations in light of the changing environment, it also presented us with opportunities for new ways of working and innovation," IDP CEO Andrew Barkla said.
"With the combined team of IELTS experts from IDP and the British Council, a strong strategy and a clear purpose, we are ready to take this next step forward in India."
Barkla said the agreement provided the foundation for IELTS to build on its global leadership position.
"IELTS's 30-year history and global partnership model means it has globally-standardised quality and integrity processes already built into every centre's operations," he said.
"Test takers and organisations can continue to have confidence their IELTS score is a true and trusted reflection of their language ability. This agreement enables us to build on IDP's focus on enhancing services to test takers in India."
British Council interim CEO Kate Ewart-Biggs reiterated the council's commitment to its broader services in India.
"Distributing IELTS solely through IDP in India will simplify and improve the customer experience for IELTS test takers. As IDP already delivers IELTS in India, the high-quality service provided to IELTS customers will remain the same," Ewart-Biggs said.
"To ensure we could continue to deliver on our global cultural relations mission, we explored strategic options for the English examinations business with IDP in India in 2020.
"The proceeds of the sale will enable the British Council to improve its financial position following the impact of COVID-19 on our finances.
"Our wider British Council work will continue in India. We remain committed to realising our global goal of building trust and understanding between the United Kingdom and India through arts, education, assessment and the English language."
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