Navis buys Australian childcare business from Wolseley

Wolseley 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. It was founded in 2004 by Tom Hardwick who will remain CEO. He and other members of the management team participated in the Navis acquisition and will hold around 10% of the company.

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.

Childcare featured prominently in Prime Minister elect Tony Abbot's manifesto. He supports existing initiatives - government support for the childcare benefit and childcare rebate programs was A$6.3 billion in the four years to 2007 and is expected to reach A$19.3 billion during the four years to 2015 - and has also promised to introduce paid maternity leave.

"Politicians in Australia have long wanted to find ways to increase the tax base to pay for the aging population and getting mothers back to work earlier is one way of doing this," Latham noted.

At the same time, it remains a highly fragmented market, particularly among operators with 10 centers or below. There were more than 15,100 approved childcare providers in Australia as of September 2012, up from 10,000 eight years earlier. It creates a target rich environment for Guardian, with Navis promising a combination of organic and inorganic expansion.

Guardian's business comprises three divisions: 10 early learning centers operated for or on behalf of corporate clients; 32 wholly-owned centers in major cities; and 27 centers run on behalf of third-party owners. During Wolseley's ownership period, Guardian acquired 21 centers and grew its employee headcount from 720 to 1,700. Compound annual revenue growth increased 46% and profit tripled.

Guardian is said to have generated an EBITDA of around A$15 million in 2012. The largest private player in the market, Australian Securities Exchange-listed G8 Education, has a network of more than 160 owned and managed centers. It generated an EBIT of A$30 million in 2012, up 39% year-on-year.

As a pan-regional private equity 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.

Wolseley invested in Guardian through its second fund, which closed at A$235 million in 2008, and the GP is now preparing to raise Fund III. Navis is currently investing its $1.16 billion sixth fund.

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