The nearly ruined ABC Learning childcare empire was saved by a philanthropic consortium, The Good Start. But it wasn’t charity. MIRANDA WARD reports.
A consortium of charities, bankers, commercial lawyers, tax experts came together with Social Ventures Australia (SVA) to raise a total $170 million to acquire the bankrupt ABC Learning childcare centres from competing private equity firms. Goodstart, the biggest social enterprise in Australia, now runs more than 600 of the failed ABC Learning childcare centres. This wasn’t charity but it wasn’t the normal run-of-the-mill investment either. It was the grey area in between: an investment with a social benefit. Of the grand total of $170 million, SVA raised $45 million for the project.
Ian Learmonth, Director SVA Social Financial, says the capital structure of the transaction resembled that of a private equity transaction and the mix and sources of capital was pioneering for the non-profit sector in Australia. “The capital structure included a medium-term loan from the Australian Government, debt financing from National Australia Bank and additional support from a range of private investors and philanthropists,” Learmonth says. The money wasn’t a grant or donation but rather an investment in a subordinated debt instrument, offering a coupon of 12 per cent each year. The minimum investment was $100,000 with notes issued over an 8-year term, with repayment at the end, and was fully subscribed. It is this area between donating and investing that SVA’s Social Finance Team is trying to capitalise on. This combination of charity and investing means philanthropists or foundations are able to recycle capital, Learmonth says.
“There is a development of nongrant, non-donation money going into enterprises so be it debt or equity or some sort of combination of the two going into social enterprises, you see a lot of it in the US and the UK,” Learmonth says. The Finance Team was an initiative created when Learmonth moved to SVA from Macquarie in May. It is building on the example of The Good Start through trying to “unlock additional sources of funding for enterprises” to add to existing pools of funds. Learmonth believes “there are a vast number of enterprises around Australia that would seek out that kind of support”. SVA provides funding and strategic support to seven venture partners who help to improve education outcomes and increase employment participation in disadvantaged communities across Australia. “Some of them [are] indigenous related, some are in the aged-care sector, some are generating employment opportunities,” Learmonth says.