Early education centre operator, Evolve, is selling its New Zealand business to focus on Australia, citing the challenges created by the government's pandemic response.
Early childhood centre. File photo. Photo: 123rf
The company has entered into a conditional agreement to sell its 105 childhood centres, which it owns through local subsidiary, Lollipops Educare Holdings, to an acquisition vehicle managed by Australian private equity firm, Anchorage Capital Partners, for $46m - but the final price would be subject to revisions.
"The rationale for the transaction is largely to accelerate the execution of Evolve's Australian growth strategy by redeploying proceeds to acquire assets in Australia," the company said in an announcement to the stock exchange.
Evolve also said its local operation had been directly affected by the government's pandemic response over the past two years, as lockdowns and closed borders resulted in teacher shortages, lower immigration levels and a "detrimental impact on overall centre occupancy".
"While the board believes occupancy will recover in New Zealand once Covid-19 impacts are reduced, the timing and extent of this is inherently uncertain and largely conditional on factors outside the control of the company," it said.
Anchorage would be a valuable operator of the local business and would provide the necessary support to ensure the centres were safe and secure, Evolve said.
The transaction was expected to be finalised by the end of September 2022 but was conditional on a number of factors, such as shareholder approval, the completion of an internal restructure to ensure the centres were owned by the subsidiary and no opposition from the Ministry of Education.
Anchorage, who planned to purchase the centres through its acquisition vehicle, BidCo, would have the chance to terminate the transaction if a "material adverse event" occurred prior to completion that had a significant financial or reputation impact on the Evolve's New Zealand business.
If the deal fell apart, Evolve would be on the hook for a $700,000 penalty if a director withdrew their recommendation that shareholders support the transaction or if Evolve started talks with another potential buyer.
If the transaction was approved, the company said it would use the proceeds to purchases more education centres in Australia.
Evolves reported a deeper half year loss of $2.23m yesterday, due to higher labour expenses, Covid-19 disruptions to its New Zealand businesses and higher financing costs.
Revenue rose 8 percent for the period, led by the company's 24 Australian education centres, which also made up 80 percent of Evolve's underlying profit in the 2021 financial year.