Polaris sponsor CapVest weighs sale of children's services giant via PwC

Josh O'Neill and Rachel Lewis
15 June 2023

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CapVest is weighing a sale of Polaris, one of the UKтs largest childrenтs services providers, at a time when regulatory scrutiny of private equityтs role in the sector is intensifying, four sources familiar with the situation said.

The asset is expected to be marketed off EBITDA of GBP 50m–GBP 60m, according to the first three sources. PwC has been retained as sellside advisor, the first two sources said, while Deloitte has been mandated in a debt-advisory capacity, the first source added. The advisors have begun sounding out private credit providers to gauge financing appetite, the first two sources continued.

CapVest's decision to explore an auction of Polaris comes at a challenging time for financial sponsors with investments in the UK's children's services and fostering sector.

Regulatory scrutiny was amplified in 2021 following the publication of an interim report by the UK's competition watchdog, which shone a critical light on private equity's involvement in the sector. The Competition and Markets Authority (CMA) study found that some of the largest sponsor-backed providers had extracted excessive profits while potentially exacerbating a supply shortage. In addition, the CMA claimed, private equity-owned providers were at a heightened risk of entering financial distress due to their elevated levels of debt incurred via leveraged buyouts.

Regulatory headwinds have taken a major toll on large-cap sector auctions, including that of Stirling Square-backed Outcomes First Group (OFG). In August last year, an attempt to exit the UK-based peer to Polaris was abandoned following a nine-month sale process that was hampered by the CMA's report. This prompted Stirling Square to instead break up the asset with the intention to offload divisions on a piecemeal basis, as previously reported. ICG, Mubadala, Civitas and Onex were among a shallow pool of bidders that had engaged in the OFG auction, as previously reported.

Pemberton is an incumbent lender to Polaris, according to the first source, having part-financed CapVest's 2018 leveraged buyout of the organisation. At the time of the deal, a tie-up reportedly worth GBP 100m between Partnerships in Children's Services and CapVest-owned Core Assets Group created the UK's second-largest children's services provider, behind OFG. The combined entity later rebranded as Polaris.

CapVest does not list Polaris under its portfolio companies on its website. However, filings with Companies House list CapVest's managing partner and co-founder, Seamus Fitzpatrick, as a person with significant control.

In the year ended 31 December 2021, Polaris booked a gross profit of GBP 64m against turnover of GBP 184m, the same filings show.

According to its 2021 strategic report, Polaris had 55 externally registered services spanning fostering and adoption agencies, residential children's homes, schools and leaving-care services.

CapVest, PwC, Deloitte and Pemberton declined to comment.