Navis in Australia demographics play

While not a solution on its own, getting mothers back to work earlier after they have children certainly helps. This explains why childcare featured prominently in the recent federal election, with Prime Minister elect Tony Abbot promising to honor existing benefit and rebate programs and also introduce paid maternity leave.

The combination of demographics and strong political support played into Navis Capital Partners' investment thesis when it agreed to pay A$120 million ($110 million) for childcare services provider Guardian Early Learning Group. The seller, Wolseley Private Equity, has secured a 2.3x money multiple and a 40% IRR on an investment made two-and-a-half years ago.

"We have been looking at education in all its forms for quite some time. It is driven by demographics that are predictable and understandable," said Philip Latham, an Australia-based partner with Navis. "In Australia specifically demographic factors mean there is far more demand for childcare services than supply right now. Occupancy levels are in the high 80s and for this business they are in the mid 90s."

Guardian is the second-largest operator of private childcare services in Australia, providing education and care for more than 5,700 children daily from a network of 69 centers. Navis wants the company to double in size during its ownership period through greenfield investments and acquiring existing providers. The market leader is domestically-listed G8 Education, which has more than 160 centers.

According to Australian government statistics, the average number of hours a child uses care services per week is 23.8, compared to 23 in 2004. For long day care, the average has jumped to 27.5 hours from 26.6. Nearly half of all 3-5 year-olds - Guardian's primary target market - were using childcare services as of 2011, up from 43.5% in 2006.

Wolseley helped the company scale up in what remains a highly fragmented market, particularly among operators with 10 centers or below. In the last two-and-a-half years Guardian has acquired 21 facilities and increased its employee headcount from 720 to 1,700, while compound annual revenue growth increased 46% and profit tripled.

The PE firm chose to exit because it had invested as much as it could to Guardian and more was required to take it to the next level. Company management is participating in the Navis deal and will hold approximately 10% of the equity.

Company management, including founder and CEO Tom Hardwick, are participating in the new investment and will hold approximately 10% of the equity.

As a pan-regional PE firm, all of Navis' investments in Australia have included an element of cross-border expansion. Guardian has yet to consider this strategy but Latham said it is likely to be studied at some point. He sees potential for taking the corporate business into places like Singapore and Hong Kong, but warns that local regulatory conditions often present challenges.

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• Topics
• Exits
• Buyouts
• Consumer
• Australasia
• Secondaries
• Exit
• buyout
• Navis Management
• Wolseley Partners
• Secondaries
• Education
• Consumer