Evolve Education sells portfolio of 105 New Zealand centres to former Affinity owners

Evolve Education Group has entered into a conditional sale agreement that will see its portfolio of early childhood education and care (ECEC) centres in New Zealand sold to Anchorage Capital Partners, the previous owners of Affinity Education Group. 

Under the terms of the agreement Evolve will sell 100 per cent of the shares in its NZ subsidiary that owns the centres for an enterprise value of NZ$46 million less net debt, a capex adjustment and associated settlement adjustments. 

The exit multiple will be 13x FY21 underlying EBITDA and it is understood that the net consideration to Evolve will be around NZ$40 million.  

“We are pleased to announce the sale of our NZ business to Anchorage Capital,” Chris Scott, Managing Director said.

“It will not only enable us to focus more fully on the execution of our growth strategy in Australia, it also gives us comfort that our NZ teams will be transitioning to an owner that has a long history of experience and expertise in the NZ market.”

Pivot to Australia supported by track record and strong balance sheet

On completion of the transaction Evolve will pivot to focus on the Australian market where it has seen good growth in network size and performance to date. 

Currently, the Group owns 24 centres located across the Eastern Seaboard states, a portfolio that it has grown from scratch since its first acquisitions in Melbourne, Victoria in October 2019. 

The operating performance of the Australian centres has remained robust over the period, with occupancy as at 21 August 2022, as reported in its Half Year Results, averaging 83.9 per cent which compares favorably to the comparative occupancy of its NZ portfolio of 65.6 per cent. 

In addition, the Australian network has consistently contributed materially higher profitability relative to its NZ peer with weekly earnings before interest, tax, depreciation and amortisation (EBITDA) tracking at AUD$375,000 compared to just NZ$175,000 despite the portfolio of centres being 20 per cent of the size. 

The Board noted in its Address to Shareholders that it felt that the funds from the sale “can be best allocated in the Australian market for a targeted acceleration of the Australian growth strategy,” and that “current Australian market conditions are highly favorable for centre acquisitions and market consolidation.”

Anchorage Capital Partners returns to ECEC soon after Affinity sale

The acquisition of Evolve’s NZ business will mark the return of Anchorage Capital to the ECEC sector having recently sold Affinity Education Group, a business which it had owned since 2015, to fellow private equity firm, Quadrant Private Equity. 

Over the course of Anchorage’s ownership Affinity was subject to a comprehensive performance improvement program that was developed to leverage the full potential of Affinity’s portfolio of centres. 

Significant investment in centre quality, curriculum, systems and processes as well as a strong focus on employee development and career progression led to a refreshed culture and material improvement in staff retention and a recovery in financial performance. 

Simon Woodhouse and Callen O’Brien, who are the Anchorage principals driving the deal and were on the board of Affinity, will be joining the board of the purchaser entity.

Transaction expected to complete in late September 2022 but conditions apply

The transaction is expected to complete at the end of September 2022 and is conditional on the following:

• Evolve’s shareholders approving the Transaction
• Release of security being approved by the security trustee in relation to the medium term notes issued by Evolve in December 2020
• Receipt of necessary change of control consents for specific leases
• Completion of the necessary internal restructure to ensure all centre based assets being acquired by BidCo are held by LECL
• The parties not receiving any written communication prior to completion from the Ministry of Education that indicates that they could reasonably be expected to take any materially adverse action in relation to centre service approvals in response to the Transaction

Anchorage, through the acquiring vehicle, may also terminate the agreement if a material adverse event occurs prior to completion that is reasonably likely to impact materially the reputation of Evolve’s NZ business, or its business as a whole.

To read the Shareholders Letter please visit the Evolve ASX page.