Could it be time to buy Think Childcare Ltd (ASX: TNK) shares after the childcare operator announced it was acquiring more childcare centres in Western Australia.
Think Childcare is one of the largest childcare operators in Australia. In 2009 the company acquired 12 loss making childcare centres out of receivership from the collapsed ABC Group. It currently has 56 centres, with 20 managed centres.
Think Childcare’s Announcement
Think Childcare has announced it’s going to acquire four newly-constructed Nido childcare operators in Perth from its incubator partners.
The centres are being acquired on an EBITDA multiple of 4 times (click here to learn what EBITDA means). The total purchase price is $6.5 million. The acquisitions are expected to contribute EBITDA of $1.6 million in the first 12 months of ownership.
Think Childcare shares have gone into a trading halt so the company can launch an institutional capital raising for $18 million to fully fund the acquisitions as well as invest in its current business and perhaps use the cash for additional acquisitions.
Whilst this deal seemingly perfectly adequate for Think Childcare, I would only want to buy its shares when it’s very cheap, such as four months ago, because a acquisition roll-up strategy may not be the most effective way to beat the market over the long term. Therefore I’d need a very compelling price to buy shares.
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