IDP Education (ASX:IEL) share price on watch after announcing major acquisition

This language testing company is boosting its key Indian operations…

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The IDP Education Ltd (ASX: IEL) share price will be one to watch on Friday.

This follows the announcement of a major acquisition by the language testing and student placement company after the market close today.

What did IDP Education announce?

This afternoon IDP Education announced that it has entered into a binding agreement to acquire 100% of the British Council’s Indian International English Language Testing System (BC IELTS India) operations for 130 million pounds on a debt free, cash free basis. The company will fund the acquisition from existing cash and debt.

According to the release, IDP Education and the British Council currently both administer IELTS tests in India, operating parallel pan-Indian distribution networks. However, this transaction will bring BC IELTS India operations under IDP Education ownership, establishing a single network that provides the foundation for IELTS to build on its leadership position in India.

Post transaction, IDP Education will be the sole distributor of IELTS in the key Indian market. This is a big positive given that India is the largest IELTS market globally by volume and has exhibited one of the highest country growth rates in recent years. It achieved annual volume growth of approximately 21% between calendar years 2010 and 2019 (prior to the impact of COVID-19).

Management also highlights that IELTS, and the high stakes English language testing industry in India more broadly, benefits from several supportive structural growth drivers. These include strong population growth, a relatively young demographic, a high propensity to study abroad, and high levels of demand for migration to English speaking countries.

What impact will this have on IDP Education?

The release explains that the transaction is estimated to be approximately 13% earnings per share accretive (pre-synergies) on a pro forma calendar year 2019 basis.

It also sees scope for material combination benefits, with estimated run-rate synergies of A$6 million to A$8 million expected to be delivered within 24 months of completion.

IDP Education’s CEO, Andrew Barkla, said: “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.”

“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,” he added.

Trading update

Also potentially giving the IDP Education share price a boost on Friday will be management’s positive update on current trading.

It advised that trading conditions have improved in recent weeks, with the progressive lifting of restrictions allowing IDP Education to recommence testing in most Indian states. Approximately 95% of installed capacity was available at the end of June.

And as was evidenced during the “first wave” in India last year, management expects that IELTS volumes will rebound as restrictions are removed. Positively, it continues to experience strong forward bookings and has been working with test takers to reschedule tests that were cancelled due to the recent restrictions.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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