A private equity house is preparing to launch what will be one of the biggest-ever auctions in the UK’s specialist educational needs (SEN) market, HealthInvestor UK can reveal.

This publication has learnt that Stirling Square Capital Partners, the London-headquartered buyout firm, has instructed JP Morgan and Moelis & Company to bring Outcomes First Group to market.

Outcomes First Group encompasses the National Fostering Agency (NFA), as well as Acorn Care & Education and Hillcrest & Options Autism.

The SEN and children’s care conglomerate operates more than 35 schools, 77 residential homes and 28 fostering agencies across the UK, which collectively generate earnings before interest, tax, depreciation and amortisation (EBITDA) of £80-90 million, sources said.

Based on historic price-to-earnings multiples at which SEN providers have traded, it is likely that bankers from JP Morgan and Moelis will target offers of at least £900 million – potentially over £1 billion – to acquire Outcomes First Group.

If achieved, such an enterprise value would represent one of the largest in the UK’s SEN market.

A source stressed, however, that Stirling Square’s plans are early stage, adding that “fireside chats” with prospective investors are underway but a competitive auction may not launch for several months.

Stirling Square and JP Morgan had not responded to requests for comment at the time of publication.

Outcomes First Group was acquired by the NFA from Sovereign Capital Partners in August 2019 for around £250 million.

Following the NFA’s takeover of Outcomes First Group, Stirling Square opted to drop the former’s branding in favour of the latter. As a result, Outcomes First Group became the dominant business.

The holding company for the combined entity – SSCP Spring Midco 2 – booked turnover of £265 million and gross profit of £116 million in the year ended 31 August 2019, financial statements filed with Companies House show.

During that period, the business recorded a loss of £58.3 million and refinanced bank loans worth £510 million, which come due in 2025.

Outcomes First Group operates in a highly lucrative yet sensitive educational segment.

The organisation – which also straddles the healthcare sector because it operates residential children’s homes – is funded in part by local authorities, which commission care from for-profit providers. Councils also often cover the fees of students enrolled at for-profit SEN schools.

This public-private ecosystem has caused controversy in recent years, generating negative media coverage of private equity-backed players – including the NFA.

In 2019, the Local Government Association said that consolidation within the UK fostering market “set off alarm bells” after it was revealed that 45% of public funds spent on independent fostering were allocated to private equity-backed operators.

However, for-profit foster care and SEN schooling providers argue that they offer services in a specialist space in which costs and barriers to entry are high, supplementing a paucity of government-funded resources.

News that a sale of Outcomes First Group will be explored follows this week’s takeover of London-based SEN schools operator Riverston Group by Chatsworth Schools, which is bankrolled by private equity firm Synova Capital.

Date published: March 3, 2021

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