Evolve Education Group, which will raise $132 million through a transtasman sharemarket listing next month, has flagged changes to government funding for early childhood care as one of the main risks its business faces.
The Auckland-based company yesterday registered a prospectus for its initial public offer (IPO), which will fund the purchase of New Zealand childcare businesses including Lollipops Educare and Porse.
The IPO price has been set at $1 per share and the firm is expected to have a market value of $177 million following its December 5 float on the NZX and Australia's ASX.
Roughly 75 per cent of Evolve is being sold through the IPO.
A significant portion of the firm's revenue will come from government early childhood education (ECE) funding, the prospectus said.
The Government currently provides 20 hours "free" ECE for children, as well as a funding subsidy for early childcare education providers.
"This funding is subject to review at any time by the Government," Evolve said.
The company said it was not aware of any significant changes being proposed to state funding, but even small changes would adversely affect the company's profitability.
Evolve registered its prospectus following the completion overnight Thursday of a fixed-price book-build process with Australasian institutions and participating brokers.
Demand for the offer was strong, with one New Zealand fund manager receiving less than half the Evolve stock it had requested.
Evolve has forecast profit of $16.6 million from revenue of $136.2 million in the 12 months to March 2016.
The company has forecast a net dividend yield of 4.69 per cent in the 2016 financial year, according to the prospectus.
Evolve will operate 30 ECE centres currently owned by Lollipops, as well as a further 55 centres it has agreed to acquire from other sellers.
Porse operates home-based ECE services.
"It is pleasing to have such strong investor support and to have secured the funds to make Evolve Education a reality," said chairwoman Norah Barlow, the former chief executive of NZX-listed retirement village operator Summerset Group.
She said the company aspired to be a leading provider of early childhood education in New Zealand.
"The early childhood education sector represents an attractive investment opportunity," Barlow said.
"Demand for childcare continues to strengthen year-on-year, driven by underlying trends, such as increasing female participation in the work force, rising household income levels and continued Government support."
Barlow said the "highly fragmented" nature of the childcare industry meant there was scope for Evolve to increase its scale through "selective acquisitions".
Evolve's management team is led by chief executive Alan Wham, the former boss of NZX-listed Pharmacybrands, which was renamed Green Cross Health earlier this year.
Lollipops Educare managing director Mark Finlay and other shareholders in that company will be issued shares as part of the acquisition of Lollipops and will have a roughly 20 per cent shareholding in Evolve following the IPO.
Retail clients of participating brokers will be able to purchase shares through the broker firm offer, which opens on November 24 and closes on December 3.
Forsyth Barr and Goldman Sachs are managing the offer, which does not have a general public pool.
In addition to Barlow, Wham and Finlay, Evolve's other directors are Queensland-based Greg Kern and Alistair Ryan, who also sits on the board of NZX-listed aged care operator Metlifecare.
• Raising $132 million.
• Proceeds will fund purchase of New Zealand childcare businesses including Lollipops Educare and Porse.
• Company will have a market capitalisation of $177 million following a December 5 NZX/ASX listing.