A move by private equity firms to suspend the sales of their childcare centre companies, worth over $1bn, could see them reaping a much larger windfall over the long term.
Quadrant Private Equity and Partners Group had their childcare businesses Affinity Education and Guardian Early Leaning on the market last year, but paused the sales until 2024.
Partners Group recently revived attempts to sell Guardian Early Learning, after Pacific Equity Partners once again showed interest, but the understanding is that those talks have gone cold and a potential deal has been shelved for now, while Affinity Education has not come back on the market.
Yet, based on current government reviews into the sector, the likelihood is that their businesses will be worth more in the future – the challenge for buyers and vendors selling in the current environment is determining just how much.
Last year, the government requested that the Productivity Commission and the Australian Competition & Consumer Commission conduct a review on the industry, with a focus on costs and compliance with respect to childcare, as multi-employer bargaining agreements to increase staff wages remain in focus.
Both reports have now been released, with the ACCC report out first and the Productivity Commission’s report out a few weeks ago, but the government is yet to determine whether it would introduce any of its recommendations.
With the cost-of-living crisis at the centre of the political debate ahead of a looming federal election, expectations are that the government will announce reforms to the industry.
The reports recommend that an activity test should be scrapped to enable those who lack access to childcare, which prevents them moving into employment, will now have that opportunity.
Currently, to gain a childcare subsidy requires proof of minimum work hours and or training.
The findings recommend that the subsidy from a percentage basis is increased for low income families from 2026.
If the recommendations are implemented, the expectations are that the earnings of Affinity Education and Guardian Early Learning will increase in the future, while real estate owners like Arena REIT and the Charter Hall Social Infrastructure REIT could also see big benefits.
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