Exclusive: Graphite Capital to sell Compass Community

Private equity firm Graphite Capital intends to sell Loughborough-based children’s services operator Compass Community in the coming months, HealthInvestor UK and EducationInvestor Global hear from six sources.

Mid-market M&A advisory firm Harris Williams’ recent appointment, Dr Julian Feneley, is rumoured to advise the process, according to two sources familiar with the situation. Feneley left the Macquarie Group, a global financial services group, in January and took the mandate to Harris Williams, this publication understands.

The company will be marketed off an EBITDA of around £20 million, according to an advisory source. However, according to two other sources this EBITDA might be too high and based on forecasts, while the company currently generates EBITDA of around £12-14 million. 

The sale is likely to reach an 8-13x multiple valuation, this publication understands. Among the possible buyers that are expected to circle the asset there are several mid-market private equity firms, according to one source.

Account filings for the year ending March 2021 put Compass Community’s revenue at £81.5 million – up 16% compared to the same period in 2020. The group had a gross profit of £36 million in 2021, up 20% from 2020, and an operating profit of £14 million, up roughly 27% from 2020.

It is understood that the Competition and Markets Authority report into the children’s social care market, launched on 12 March, could impact the sale process.

Compass Community provides fostering services, children’s residential care and specialist schooling across the UK.

Graphite Capital invests in mid-sized businesses in the UK. Since 1981, it has raised and managed nine limited partnership funds, seven of which are now fully or largely realised. Graphite is backed by global pension funds, insurance companies and endowment funds. Nearly 39% of its latest fund, Graphite Capital Partners IX, comes from the UK, 44% from Europe and the balance from the US and Japan.

The sale would end a holding period of almost five years for Graphite, which acquired Compass Community from August Equity in 2017 for an undisclosed amount. Under August Equity’s ownership, Compass Community ⁠— at the time known as Compass Services for Children Group ⁠— became the third largest independent fostering agency in the UK with more than 1,000 fostering placements and 12 residential homes. August Equity had invested £18 million in the group in 2012.

Compass Community and Harris Williams did not immediately return our request for comment. Graphite Capital declined to comment.

Date published: March 25, 2022

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