Morgan Stanley to pay $698m for childcare centers

The private equity arm of the US’ third largest securities firm is set to take a 60 percent stake in ABC Learning, the world’s biggest publicly traded owner of childcare centers.

ABC Learning Centers has agreed to sell Morgan Stanley Private Equity a 60 percent stake in its US company, Learning Care Group, a move which values Learning Care at $775 million (€507 million).

The deal with ABC, which is the world’s largest publicly traded childcare centre company, will put a Morgan Stanley portfolio company squarely in competition with a Bain Capital portfolio company. Last month Bain agreed to pay $1.3 billion to acquire ABC’s next-largest listed competitor, Bright Horizons Family Solutions.

Since being taken over by Australian parent company ABC in January 2006, Learning Care has more than doubled the number of pre-school and child care centers it operates in the US to 1,150. The group operates brands such as Children’s Courtyard, Childtime Learning Centers, La Petite Academy, Montessori Unlimited and Tutor Time.

ABC Learning also operates more than 1,200 child care centers in Australia and New Zealand and 112 nurseries in the UK. It has reportedly spent more than $1 billion on expansion plans in the four countries in the past three years.

The Morgan Stanley deal will not affect the company’s ambitious growth plans in the US, and represents “business as usual”, a Learning Care spokeswoman told

Under terms of the deal, Morgan Stanley will pay ABC Learning A$750 million in cash, allowing the Brisbane-based company to pay off some of its senior debt, which has been linked to its US expansion. Morgan Stanley has also agreed to pay an additional $30 million in 2009, as well as purchase notes convertible into 10 percent of ABC Learning’s stock.

The company said the deal values its US assets at 14 times EBITDA for the 2007 fiscal year.

Both sides have entered into an exclusivity period until March 24, with completion expected at the end of April.

ABC chief executive Eddy Groves said in a statement the transaction would put Learning Care in a “strong financial position. We will be readily able to fund our growth path and, at the same time, maintain a low-risk capital structure.”

During a conference call with journalists, Groves also revealed ABC Learning would sell its UK voucher business Busy Bees Group – the UK’s largest child-care chain. It has hired London-based Rothschild & Sons to manage the sale of the assets, which may be valued around A$250 million.