Mayfield Childcare plucks Montessori education provider Precious Cargo from administration

An Adelaide-based Montessori early education provider that was placed into administration last month has been quickly snapped up by Mayfield Childcare (ASX: MYG), which will pay $4.8 million for seven operating centres of Precious Cargo and its head office, as well as the brand name and intellectual property (IP).

Precious Cargo was founded by Sheryl Shigrov in 2006 after she had volunteered and then worked at her son's Montessori pre-school, inspired by its approach to early learning.

She helped build the company to 11 centres, but due to "external financial circumstances" Precious Cargo entered external administration in June with Andrew Heard and Anthony Phillips of Heard Phillips Lieberenz leading the process.

Melbourne-based Mayfield, a company that runs 39 childcare centres across Victoria, South Australia and Queensland, has entered an exclusivity agreement and conditional offer to acquire Precious Cargo.

It has clarified the four remaining centres will not be acquired and will no longer carry the Precious Cargo brand.

The deal is subject to definitive transaction agreements, but Mayfield has been given immediate management rights over aspects of Precious Cargo's operations, namely head office staff and the centres in Blackwood, Collinswood, Lockleys, Marion, St Peters, Westbourne Park and Woodville Park.

The transaction will either be funded by existing working capital or an acquisition facility which stood at $11.9 million in February. 

Mayfield has also gone through a rollercoaster of its own over the last couple of years, from the highs of having two competing takeover offers from Genius Education and Busy Bees that were eventually withdrawn, to an internal review led by CEO Ashok Naveinthiran uncovering alleged misallocations from former CEO Dean Clarke.

In January 2023 Mayfield engaged KordaMentha to conduct an independent forensic investigation into the company's affairs from the start of 2020 to the end of 2022, reporting that funds were allegedly misappropriated for works at two residential properties owned by a former employee and two childcare centres operated in connection to them. Clarke was not named in the report, but was mentioned later when the settlement had been finalised.

Clarke is the founder of Mayfield and oversaw its initial public offering (IPO) in 2016 at a time when it was an agglomeration of 16 disparately run family childcare centres. Clarke announced his retirement in August 2022 following an intense period of acquisitions that saw the group almost double its centre count and expand into multiple states.

In October 2023 the company reached a settlement of more than $1 million with Clarke, which he paid by the end of the year. Naveinthiran described the final settlement as a significant step in reinforcing Mayfield's commitment to integrity and financial responsibility.

"Having completed a thorough internal investigation, we have also identified and rectified non-compliant policies and procedures to ensure ethical practices are upheld and intend to cooperate fully with regulatory bodies in this regard," he said at the time. 

The review that led to Mayfield clawing back money from the founder also revealed a need for significant centre remediation and reinvestment, and led to the decision to divest from six centres which had occupancy rates below 40 per cent.

Under such challenging circumstances, in order to preserve cash the board opted not to give shareholders a half-year dividend for the June half. Shares plummeted 32 per cent after that decision to 71 cents per share (cps) - a level that was already well below the $1.35 per share offer that Busy Bees withdrew from in June.

Genius Education, Naveinthiran's former employer for which he had helped transition 14 centres into the Mayfield portfolio, withdrew its offer at a similar price level in January last year.

Mayfield reported a loss of $1.4 million for the 2023 calendar year - a number that belies a significant 87 per cent lift in underlying EBITDA to $3.7 million in the fourth quarter. For 2024 the group expects this figure to reach $9-9.5 million.