Embark Education makes $31m tilt to acquire Mayfield Childcare

Gold Coast-based Embark Education (ASX: EVO) aims to more than double its number of early learning centres under ownership with the proposed acquisition of Melbourne-headquartered Mayfield Childcare (ASX: MFD) in a proposed deal worth almost $31 million.

The announcement comes within a fortnight of Embark securing a 19.9 per cent stake in the company, snapping up part of the holdings of Mayfield's erstwhile largest shareholder Genius Education Group which has seen most of its subsidiaries enter administration.

Genius held more than 30 per cent of shares in Mayfield before Embark purchased around 15 million shares on 27 October, with UBS soon procuring the remainder of the collapsed group's stake a few days later.

Embark has today revealed plans to make an off-market takeover bid for all ordinary shares it does not already own in Mayfield at $0.50 per share, representing a 25 per cent premium to the price level before its initial holding became public and a 7.6 per cent premium to yesterday's closing price.

If the suitor is successful its outlay would be worth $30.89 million, valuing Mayfield's share capital at $37.7 million.

Embark, which has a market capitalisation of around $120 million, highlights a successful takeover would lift its owned centre numbers from 39 to 84, giving the combined group the resources needed to provide improved educational and care outcomes for children whilst "ensuring financial robustness".

The Mayfield board will consider the proposed offer and has advised shareholders to take no action at this time.

The consolidation attempt comes in the same week that two other ASX-listed childcare groups, G8 Education (ASX: GEM) and Nido Education (ASX: NDO) saw their shares plummet on lowered earnings guidance.

G8, Australia's largest listed childcare group which has seen a steady erosion in its share price following troubling allegations at one of its Victorian centres mid-year, failed to record an expected seasonal boost in occupancy last month.

Nationally, sector has been challenged amidst cost-of-living pressures but there is some degree of optimism over legislation that will remove the activity test in early January, activating access to subsidies for certain single-income or no-income families that are barred from financial support under current policy settings.

In its most recent quarterly result released last week, Mayfield revealed a stabilisation in its occupancy levels with a slight improvement on the half-year prior from 63 per cent to 64.1 per cent. 

Revenue in the quarter rose 5 per cent to $23.7 million while efficiency gains boosted underlying EBITDA by 17 per cent to $2.7 million amidst a slight improvement in margins.

"Labour costs as a percentage of revenue continued to decline, supported by refined rostering tools and stronger leadership capability at the centre level," Mayfield stated on 31 October.

"These gains have been achieved without compromising compliance or educator-to-child ratios, ensuring the sustainability of performance improvements.

"Integration of the Precious Cargo network has progressed well, with all operating and financial systems now aligned to Mayfield standards. Focus during the quarter shifted toward brand consolidation, family engagement, and consistent delivery of the Montessori-inspired model, supporting operational stability across the South Australian portfolio."

Embark's last performance update in late August showed a 43.6 per cent year-on-year jump in centre revenue to $49.4 million in the first half of the year, with centre EBITDA up 33.3 per cent at $10.8 million.