Learning curve for 3i

3i and Barclays have backed the management buyout of the pre-school high street chain, Early Learning Centre, from John Menzies. The deal, worth a total of GBP29.6 million, comprises GBP17.3 million cash, a vendor loan note of GBP3.3 million and GBP9 million repayment of group financing. A further GBP14.4 million in working capital has also been arranged. Menzies may receive further amounts on any subsequent sale or flotation of the company within defined time periods. The sale is part of John Menzies’ strategy to focus on newspaper and magazine distribution and aviation logistics support services.

Mike France, managing director of Early Learning Centre (ELC), gained his experience in senior positions at Bhs, Shoe City and Littlewoods. He says the investors and management team realises the potential of making the ELC business as big as the brand: “Our strategy is for growth in all channels and internationally and with the support of such partners we can work towards a successful future with confidence and enthusiasm.”

This sale completes a GBP150 million disposal programme carried out by John Menzies over the last three years. In March 1998 the company sold its John Menzies Retail business to the WH Smith Group and last year it sold its book, video and music wholesaling business, THE. Through this strategy John Menzies has moved away from retail and its reliance on seasonal trade, increasing its focus on distribution. Proceeds are being used to reduce the company’s borrowings.

In 1997, following the introduction of an unsuccessful nursery and childrenswear range, ELC bought in the current management team, led by Mike France and Peter Ellis. They turned the business around, revitalising the product range and returning the Early Learning Centre to its traditional focus. John Menzies first considered selling the business to 3i in 1999 but faced with too high a price the VC withdrew, forcing the company to postpone the sale.

The Early Learning Centre has 213 stores nationally with 53 concessions in Debenhams and a product range available through Sainsbury’s. The company also has 11 franchise operations in Australia and the US and offers an Internet and mail order service. The company made an operating profit of GBP1.7 million on turnover of GBP165 million in the year ending May 5, 2001, having reported a GBP2 million loss the previous year. David Mackay, chief executive of John Menzies, said: “The transformation of ELC from a loss-making business into its present successful format has been a long process, and we have every confidence that the business will prosper under its new ownership.”

Ernst & Young Corporate Finance advised the management team.