Product and Service
Companies included in Child care- employer sponsored sector in education industry are primarily providers of employer sponsored child care and early education.
Demand for Product and Service
As our sales data indicates, growth in demand for companies sponsored child care and education has been increasing quickly in the past several years, which has resulted from increasing demand from companies for competing for talent by providing better day care for their employee’s children.
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Demand for service center based, employers sponsored child care and early education has been strong and grown fast as indicated by 1. Fast increase in enrollment from mature and new centers of companies in this sector. 2. Companies’ ability to raise tuition fees.
- The fast increase in enrollment in the past several years may be meeting its temporary maximum.
Causes behind the trend
- Economic recovery and demand for expansion of business and the resulted pressure on companies from competition for talents such as employees’ benefits provide the solid base for fast growth in services of employer sponsored child care and early education.
Increasing disposable income of family and increasing realization of importance of high quality child care present the additional factor for the booming in this sector.
There is a reason to believe that the upward trend will continue since the drivers behind the booming may still exist. However, the rising labor costs and thus diluted profits may be supposed to be seen in a short term and cause more M&A activities as slowing down increase in new opening centers.
General Financial Performance of Companies In the Sector
It seems that demand for employer sponsored child care and early education service in the past several years has been strong and grown fast, which presents an average of 7-14% annual growth in enrollments in mature centers and new centers in the past several years. It seems that enrollment may be declining in the first half of 2018 but not sure whether it is because of same center decline or slowing down new opening of new centers.
Our data indicate, from a typical company, that there was an increase in company’ gross margins and operating margins in the past several years during the same time when its revenue increased as a result of both increase in tuition and enrollment. The typical gross margin is about 23% (including amortization of intangible assets) with a SG&A as percentage of sales of average 11%. The typical operating margin is 12% presenting an increase from 10% about four years ago.
According to our analysis, the current companies’ enterprise price/EBI ratio is 55 with an interest/EBITDA ratio of 15%.