Deal in Focus: Sovereign makes £18m offer for Synarbor

Alice Murray
04 August 2015

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Sovereign Capital has made an ТЃ18.5m offer for Synarbor, highlighting continued appetite for education-focused recruitment businesses. Alice Murray reports

Sovereign recently offered to buy Synarbor for 37.88 pence per share, which gives the company a market-cap of £18.5m. Senior facilities to finance the deal have been agreed with Lloyds Bank for a principal amount of up to £10.5m.

Luke Johnson of Risk Capital Partners holds more than 11.5 million shares in Synarbor, representing a 25.68% stake. He has recommended the offer, alongside the company's independent directors. Once the deal is completed, Johnson and Denis Hall will step down from the company's board.

Synarbor is an education recruitment business, placing staff into state, independent and international schools. The company primarily places temporary teachers, teaching assistants and support staff to primary, secondary, special educational needs schools and nurseries.

Education, education, education
The company operates under three brands: Supply Desk, Teach In and Synarbor Education. Synarbor has 15 UK offices, with its headquarters based in Sheffield. It is also present in Ireland, Canada and Australia. In 2014, the company generated revenues of £28m and operating profit of £2.3m. Synarbor employs 94 people.

The company de-listed from AIM in 2008 due to its "susceptibility to market conditions". Since then, its shares have been held on JP Jenkins, a platform exchange for unlisted securities.

Following the deal, Sovereign will support Synarbor's growth through bolt-on acquisitions in both the education recruitment and potentially wider education services market. The GP has already identified a number of potential acquisitions, with which it is currently in discussions.

On completion of the deal, David Evans, currently director of education at Synarbor, will be named managing director of the company. Furthermore, Evans will also subscribe to 1.25% of the acquisition vehicle Star Bidco. Evans will replace current CEO Dean Kelly, who will remain with the business to ensure a smooth handover over the coming 12 months.

The deal itself highlights a growing theme in the European private equity market: the increasing trend for take-privates. While not technically a de-listing – as Synarbor has been trading on a private platform since 2008 – the transaction shines a light on growing appetite among GPs for listed companies. So far this year, unquote" data has recorded seven take-private deals across Europe, including Evry in Norway; Chime Communications, National Accident Repair Services and Quintain Estates in the UK; Exact and TenCate in the Netherlands; and Mols-Linien in Denmark. In 2014, notable take-privates included TPG's acquisition of Prezzo and Castik Capital's purchase of Waterlogic.

Teacher's pet
The acquisition of Synarbor also highlights UK private equity's fondness for teacher-recruitment businesses. One asset that has long caught the industry's eye is Education Personnel, another supply-teaching business. The company first received private equity backing in 2001 when Equistone (then Barclays Private Equity) bought the business, according to unquote" data. In 2007, RJD Partners led the £24m secondary buyout of the company (then Teaching Personnel). RJD's investment was supported by management reinvesting and £14m of banking facilities provided by Yorkshire Bank.

In 2010, Graphite backed the £45m management buyout of the firm from RJD. The following year, the company was merged with Protocol Education (purchased from backers Bridgepoint) to create Education Personnel. The firm's private equity ownership came to a close in 2014, when Graphite sold the company back to its management in a buyout backed by ICG. The business was understood to be sold for £300m, generating a 6x return for Graphite, a price widely thought to stand in the double-digit EBITDA multiple range.

Other similar deals include MML Capital's acquisition of Learning Curve in March this year.

According to announcements made by Synarbor relating to the takeover, Sovereign believes the education market is robust and resilient to macroeconomic developments. Furthermore, Synarbor has produced strong results in recent years because the education sector is currently facing a shortage of qualified teachers, which is compounded by high attrition rates, birth rates and employment migration, meaning that schools are unable to hire permanent staff. Because of this, schools are increasingly accessing recruitment agencies to tackle vacancies with supply teachers, as well as for permanent teachers, interim leaders and head teachers.

While this means high levels of demand for Synarbor's services, the company foresees difficulties in attracting and finding teachers to cater to these growing requirements. Therefore, part of Sovereign's investment has been earmarked for setting up new offices, hiring more staff and developing systems to support business growth.

People
Sovereign Capital – Michael Needley

Advisers
Management – Opus Corporate Finance (M&A).
Equity – Grant Thornton (Financial due diligence); Eversheds, Alistair Cree (Legal).