Shares of childcare centre operator G8 Education Ltd (ASX: GEM) have entered into a trading halt today after the company announced that it had contracts in place to acquire 20 childcare and education centres for a total of $36.7 million.
The company will issue approximately 20.4 million shares at an issue price of $4.91 per share – a 4.5% discount compared to their most recent closing price of $5.14 – to raise a total of $100 million to fund the acquisitions.
The company said that 17 of the 20 centres were being purchased for $24.35 million while a further $1.3 million payment was conditional on an earnings before interest and tax (EBIT) target being achieved in the 12 months post settlement. The purchase price represents 3.98x anticipated EBIT for the 12 months post settlement which is in line with the company's stated acquisition plan.
The other three centres are considered to be premium centres. G8 Education gained options to purchase these centres after it acquired 91 centres back in March this year. These three centres will cost G8 Education $12.35 million which represents 6.19x anticipated EBIT. When combined, the 20 centres will increase the total number of places in G8 Education's Australian portfolio by 1,343 per day, and will be earnings per share accretive from settlement date.
The remainder of the $100 million raised by the company will be used to strengthen the company's balance sheet to allow it to continue acquiring businesses around the country to strengthen its market position. Indeed, this strategy has allowed the company to deliver enormous returns to shareholders in recent years and with plenty of room left to expand, I expect it will continue to do so in the future.
