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G8 Education equity raising - a vote of confidence for FIIG investors

by Gavin Madson | Oct 01, 2013

Yesterday G8 Education (GEM) announced to the ASX that it has successfully completed a placement to institutional and professional investors to raise $80.6m. The monies raised will be used to fund future acquisitions.

As we noted in our research supporting our origination of the company’s Notes, GEM has a strong history of support from equity markets and has a strong history of applying funds raised from equity markets to EBIT accretive acquisitions.

We expect the $80.6m equity raising to be applied to acquisitions of child care centres at a valuation of 4.0x EBIT, which has been the company’s historic practice. Once fully applied to acquisitions, this will reflect an increase in the level of annual EBIT of $20m. This in turn improves credit metrics by around 10% from those presented to FIIG investors as part of the origination of The Notes. In addition to the improved credit metrics, FIIGs Notes holders also enjoy the benefit of the extra ‘buffer’ provided by the increased level of equity sitting below note holders in the capital structure.

Acquisition update

In addition to the $70m raised through FIIG’s Notes investors, the company also had $30.5m in cash reserves at year end. During the week the company also updated the market on the success of its acquisition programme and the allocation of these funds.

The centres were acquired from numerous vendors and are located across Queensland, New South Wales, Victoria, Tasmania and South Australia, further diversifying the groups’ centre exposure.