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MindChamps PreSchool Makes Another Major Acquisition

MindChamps PreSchool Ltd (SGX: CNE) is wasting little time in continuing its expansion in Australia. On Sunday, 7 April, MindChamps announced that it has entered into an agreement to acquire eight more early learning centres located in and around Sydney.

Investors reacted positively to the news with shares of MindChamps increasing 4.62% on Monday.

Here’s what investors should know about the acquisition.

Growing its presence in Australia

MindChamps, through acquisitions in Australia, is looking to strengthen its brand presence there. The latest acquisition of the eight learning centres in Australia brings its total number of early learning centres in Australia up to 20.

Upon completion of the acquisition, there will be a total of 82 MindChamps preschool and enrichment centres. The centres can be divided into company-owned and operated (COCOs) and franchisee-owned and operated (FOFO).

With the acquisition, the total number of COCO centres will increase from 19 to 27, with 19 of them located in Australia.

Purchase consideration

The total purchase consideration is A$40.8 million (S$39.2 million) and was arrived at a willing-seller-willing-buyer basis. MindChamps will need to fund the acquisition partly through its existing cash and an acquisition loan. 

Based on its latest financial results, MindChamps was in a net cash position of S$14.5 million. As a result, based on my calculations, this would leave MindChamps in a net debt position of around S$24.7 million.

Earnings accretive

While the purchase consideration will certainly impact MindChamps’ financial position, management is confident that the acquisitions with have a “significant positive impact” on the earnings per share of the Group this year.

Founder CEO & Executive Chairman of MindChamps PreSchool Limited, David Chiem said, “MindChamps began as a research team in Sydney in 1998, and now, having proven the success of our breakthrough early childhood education model (known globally as the 3 Minds Education Movement), I am proud to be able to bring it back to Australia where it first began, to make a difference to the development of young minds here.”

Foolish final thoughts

Market participants here have taken the news positively with the MindChamps share price rising the day after the announcement. In my view, the use of its excess capital to expand its business could be good for investors over the long-term. The expansion is funded by debt, and the acquired centres are seemingly already profitable. As such the acquisition will most likely have an immediate positive impact on earnings per share.

In addition, the company’s balance sheet, though weakened after the acquisition, is still manageable in my opinion. MindChamps generated S$7.1 million from operations and will most likely be able to meet any near term financial obligations.

However, the acquisition does leave the group in a net debt position and, as such, will most likely be hard-pressed to make other major acquisitions in the near future. Also, the estimated earnings growth from the acquisition was not mentioned in its announcement. Shareholders should continue to monitor the company’s future earnings to get a better picture of the long-term impact of the acquisition.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.