CDH backs $200m buyout of China testing business

While the transaction is structured as a carve-out, professional testing accounts for the vast majority of ATA’s revenue. The listed entity will be left with a K-12 education assessment tools and content business and research projects with two Chinese universities. It plans to use part of the proceeds from the sale to develop interests in secondary and higher education.

This explains why the size of the deal exceeds ATA’s market capitalization, which stood at $150 million on February 6. The stock gained nearly 33% in response to the sale announcement, closing at $6.19.

CDH will contribute $45 million in equity from its fifth US dollar-denominated fund, which closed at $2.55 billion in 2014. Kevin Ma, ATA’s co-founder and CEO, is participating in the deal through New Beauty Holdings, according to a filing. This entity has secured up to $82 million in debt financing from China Merchants Bank and it will own 51% of ATA Online, the testing business.

Founded in 1999, ATA provides large-scale, computer-based exam services for professional certification and skills assessment in China. The company had 3,256 test centers nationwide as of September 2017 and has delivered approximately 93.4 million billable tests since inception.

It works with China’s Ministry of Human Resources & Social Security and various financial services industry associations, including the China Banking Association (CBA), the Asset Management Association of China (AMAC), and the China Futures Association. Banks are among the ATA’s most prominent corporate clients, but it also provides services to the likes of China Mobile, Huawei, and Baidu.

The company is responsible for the largest number of computer-based exams delivered in a single weekend as organizer of the CPA exam for the Chinese Institute of Certified Public Accountants (CICPA). A total of 2.2 million tests were administered last year in 9,500 exam rooms across over 900 test centers. Services for corporate clients tend to be more specialized, flexible and in some cases online only.

ATA delivered 12.1 million tests in the 2017 financial year, up from 10.3 million a year earlier. Over the same period, revenue rose from $64.7 million to $68.6 million but the company swung from a net profit of $4 million to a net loss of $1.4 million. The CICPA, AMAC and CBA together accounted for nearly 50% of revenue. The share of revenue for services excluding testing was 9%.

CDH is currently raising its fifth US dollar fund, which has a target of $2.5 billion. The firm closed its debut mid-market fund last year at $800 million – comprising $300 million in US dollars and $500 million in renminbi.

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• Topics
• Greater China
• Buyouts
• Consumer
• Support services
• China
• CDH Investments Management
• Education
• professional services