19/06/2014 - 13:42

Child care sell-off reaps $150m

19/06/2014 - 13:42

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A major shake-up in the national child care industry has resulted in the owners of five Western Australian chains reaping an estimated $150 million from the sale of their businesses this year.

Child care sell-off reaps $150m
SWEET DEAL: G8 Education has bought Jellybeans Child Care.

A major shake-up in the national child care industry has resulted in the owners of five Western Australian chains reaping an estimated $150 million from the sale of their businesses this year.

The buyers have been ASX-listed companies G8 Education, which has purchased 68 WA centres this year, and Affinity Education Group, which has contracted to buy eight WA centres.

The vendors have not been disclosed, but Business News has established that G8 has bought four WA groups – Vassallo Corporation’s Great Beginnings, Jellybeans Child Care, Huggy Bear, and Jacaranda.

Also, the owners of Kids Inn last week accepted a conditional takeover offer from Affinity, which is currently conducting a due diligence review.

Queensland-based G8 paid an average price of about $2 million for the 68 centres it bought in WA, based on details lodged with the ASX, suggesting the vendors collectively reaped about $136 million.

Affinity, also based in Queensland, paid an average price of about $1.6 million, suggesting its eight WA centres cost about $12.8 million.

The average figures disguise the actual amount paid for each group, which include a mix of long-day care centres and after-school centres.

The biggest seller was Vassallo Corp, which sold 22 centres for a reported $65 million.

That indicates business owner Rory Vassallo attracted an above-average price of $2.95 million for each of his centres.

The national operators have historically kept away from the WA market, which had higher regulatory standards than other states.

However, the federal government has in recent years lifted national standards so they are aligned with WA practices.

Another big driver of change was the emergence of Sterling Early Education, which had contracted to buy a large number of centres nationally, including Jacaranda, Jellybeans, and Huggy Bear in WA.

The purchases were due to be finalised after Sterling completed a stock market float, however the company failed to attract sufficient backing from institutional investors and chose instead to sell out to G8.

Its temporary presence in the market pushed up the prices paid for child care businesses.

G8 had traditionally paid four times forecast earnings before interest and tax (EBIT).

When it announced the purchase of 91 centres in March, including the Sterling centres, the price had increased to 5.79 times anticipated EBIT.

Similarly, Affinity paid 4.1 times forecast EBIT for its initial batch of 57 east coast centres, following its ASX float in November last year.

But it paid 5.2 times anticipated EBIT when it agreed to buy a further 51 centres (including eight in WA) in April this year.

The national acquisition spree by G8 and Affinity still leaves the industry highly fragmented.

G8 has a total of 395 centres across Australia, which gives it a 5 per cent market share, according to its latest ASX presentation.

Affinity is a much smaller player, with 119 centres nationally.

The biggest player in the national market is Goodstart Early Learning, a not-for-profit business that bought most of the centres from failed company ABC Learning.

It has 641 centres nationally, giving it a 12 per cent market share.

The vast majority of centres are single, stand-alone operations.

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