Alongside the rise in parents opting to work from home, the childcare landscape has changed notably over the past year with national operator G8 Education (ASX: GEM) set to diversify their services with entry into in-home services via the acquisition of Leor Pty Ltd.
Although still very small in comparison to G8’s national network, Leor is a growing provider of in-home childcare and NDIS services.
Total upfront consideration for Leor is $2 million with a further $7.5 million potentially payable if earnings targets are met over the next 3 years.
Given G8 generated $421.5m in revenue for the 6 months ended 30 June 2021, the purchase is relative peanuts for childcare company but will give them valuable insight into the demand and operating knowledge of in-home childcare services. Should current childcare trends continue with more parents able to look after their children while working from home, in-home care would offer defensive mechanisms for G8 whose average occupancy of 68% is still down on their pre-pandemic level of 70.4%.
Leor will operate as G8’s newly established specialist care division under the leadership of Leor Founder and Managing Director, Andrea Christie-David and is expected to be self-funding following a modest initial investment from G8.
Being an in-home service without any physical locations, Leor is present in most states and territories already, with integration into G8’s marketing services enabling it to scale further to deliver a broader range of in-home services.
“We believe there is a real growth opportunity in the in-home and specialist care markets and see this acquisition as being an attractive adjacent opportunity for our business,” said G8 Education CEO, Gary Carroll.
“It will enable us to expand our service offering, provide greater convenience and flexibility for families and team members, and potential new sources of revenue growth for the business. Leor is a great strategic fit for G8 Education and we see wide ranging opportunities to work together to grow the offering over the medium term.
“This acquisition is consistent with our overarching focus on driving quality across the business, and finding new and innovative solutions for families, to meet their evolving needs. It also comes at a critical period for families, who are balancing changing work practices – including work-from-home arrangements, with the desire to have greater flexibility over their child care arrangements.”
While G8 does not expect Leor’s short-term profit contribution to be material, the Company sees long-term opportunities to build the business as families continue to adapt to an evolving COVID-19 environment.
For the Half Year ended 30 June 2021, G8 Education reported a statutory net profit after tax of $25.1m but has forewarned that lockdowns in the Eastern states have begun to impact the seasonal trend in the back half of the year.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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