CBPE Capital has commenced exclusive talks to acquire a minority stake in a company formed by a merger of Arbor Education and The Key, two UK school management information system (MIS) providers, EducationInvestor Global can reveal.

The mid-market buyout house has pulled ahead of private equity firms ECI Partners and Levine Leichtman Capital Partners (LLCP) in a months-long race to buy a slice of the joined-up business, three sources told this publication.

Final bids were tabled at the beginning of September, at which point LLCP dropped out of the process, it is understood.

Though a final accord is yet to be reached, a deal with CBPE Capital is expected to be finalised within four weeks, a source said – paving the way for further consolidation in the UK MIS market, in which several auctions are underway. Capita Education Software Solutions, which owns SIMS, the UK’s largest school MIS provider, was put up for sale in June. Meanwhile, shareholders in iSAMS, the private school sector’s favoured MIS provider, recently instructed corporate financiers to explore sale options.

Under the transaction, the exact terms of which are unclear, CBPE Capital will be given equity in return for a capital injection into an enlarged, fast-growing, cloud-based competitor to SIMS, which is used by around 80% of state institutions but runs on in-house data servers.

The merged entity is worth £90-95 million, according to several insiders privy to its valuation – nearly 20-times its annual EBITDA of around £5 million.

CBPE Capital – which formerly traded as Close Brothers Private Equity – invests in UK-based businesses with enterprise values of up to £150 million. Its current fund, CBPE Capital IX, closed with capital commitments totalling £459 million in August 2016. Technology and business services are two of six core sectors in which CBPE Capital has expertise, according to its website.

When contacted by this publication, a spokesperson for CBPE Capital said that the firm “has no comment to make”.

Arbor and The Key both offer a range of services and solutions to schools, including attainment and progress tracking, performance analytics, attendance data, and professional development tools. More than 1,400 primary schools across England use ScholarPack, The Key’s school MIS, which it bought in 2018, while more than 800 institutions and multi-academy trusts use Arbor’s version, according to the firms’ websites.

The Key’s chairman, Ian Armitage, cut his professional teeth in the world of private equity prior to joining the organisation more than six years ago.

From 2000 to 2012, he was chief executive and chairman of buyout house HgCapital, which he co-founded. Armitage also chairs Odyssean Capital and is an advisor to Tenzing Private Equity.

Armitage is also a non-executive director of Arbor, in which he personally holds a 14% stake. Around 16% of the company is controlled by The Key – giving Armitage and his primary organisation a combined 30% share in Arbor. It is understood that Armitage, who is being advised by management consultancy Jamieson, instigated the tie-up between Arbor and The Key.

In July, a source told this publication: “He [Armitage] has an option to acquire the remainder of Arbor on certain terms over a certain period of time. To help fund that acquisition, he’s looking for a minority investor, which will ultimately acquire a stake in the combined business.”

According to filings with Companies House, Arbor recorded a loss of £2.3 million in the year ended 31 September 2019 but had expected “to be cash-flow break-even within the next 18-24 months”.

During those 12 months, it signed new contracts with 79 secondary schools and 67 multi-academy trusts (MATs), its strategic report states.

In July, Arbor announced that it had forged a deal with United Learning, the UK’s largest mixed-phase MAT, to implement its MIS across the trust’s 72 state schools.

“Arbor is loss-making but has good growth [potential],” said one source in July. “They’re in a good place and doing well,” commented another insider that month.

In the year ended 31 August, 2019, The Key grew its revenue by 33% year-over-year to £13.5 million and recorded profit of £805,481 – down from £2.1 million in the same period of 2018. The fall in profit is not explained in the group’s strategic report – however, the directors “consider the results for the year and the year-end position to be satisfactory and in line with expectation”, it stated.

The Key is headed by chief executive Chris Kenyon, who assumed the role last February, succeeding Fergal Roche, who left the company in October 2018.

Date published: 22 September 2020

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