The directors of a UK-based school software provider have appointed advisors to explore a sale of the company, EducationInvestor Global can reveal, accelerating consolidation in a segment to which private equity is paying increasingly close attention.

This publication has learnt that Orovia Group, which sells payroll, HR and budgeting software to schools, independents and multi-academy trusts, has instructed Grant Thornton to oversee an auction of a controlling stake in the company.

Orovia Group’s suite of software-as-a-service (SaaS) products encompasses EduPay, a digital payroll system, and BPS, a budget-planning platform. According to its website, Orovia Group has more than 4,500 education clients and boasts a customer retention rate of 97%.

Filings with Companies House show that Orovia Group’s directors – Stephen Cowley, Jim Hartley and Christopher Green – formed a shell company, Ghc Holdings Limited, and to it transferred ‘significant control’ of the business. This process, which streamlines the shareholder structure, is common practice when a company is being prepared for market.

While it is unclear when Grant Thornton will formally launch an auction of Orovia Group, sources have told this publication that pricing expectations are high.

One insider, who asked to remain anonymous because talks are private, said that the organisation is targeting a “massive valuation” of around £70 million.

A banker familiar with the business put its earnings before interest, tax, depreciation and amortisation (EBITDA) at £3-4 million, but caveated that “at least part of this figure is run rated” – in other words, based on forecasts.

According to the banker, while a £70 million enterprise value would be “highly ambitious”, it “is not unachievable if the business is marketed on next year’s EBITDA”, because SaaS providers with high client retention rates can “forecast future growth with reasonable certainty”.

The banker added: “If you look to next year’s financials and the business continues on its current growth trajectory, £70 million doesn’t actually look that unreasonable.”

Orovia Group could also benefit from increased competition among investors – mainly buyout funds and private equity-backed trade consolidators – in the school software market.

An ecosystem in which more money is chasing fewer assets has driven up the price-to-earnings multiples at which school software providers trade.

Moreover, as one management consultant explained, providers that have been acquired by private equity-backed trade buyers will not come to market as individual entities under the typical four-year private equity cycle.

Instead, they are integrated with larger parent organisations, which command higher multiples and thus prices at auction because they are worth more than the sum of their parts.

“With each year that passes, there are fewer available businesses,” the consultant said. “An investor will often look at an asset in this space and think, ‘it’s this or nothing’.

“We’re approaching the point now [in the school software market] where almost everything of any scale is gone.”

One source said that “a number” of parties are weighing off-market bids for Orovia Group in an attempt to pre-empt a competitive auction.

Grant Thornton declined to comment.

Orovia Group did not respond to multiple requests for comment.

Orovia Group’s plans to explore an auction suggests that a wave of consolidation – driven largely by private equity – in the school software market that began in the first half of last year is set to continue in 2021.

Earlier this week, EducationInvestor Global exclusively revealed private equity firm ECI Partners’ plans to offload its controlling stake in CPOMS, the fast-growing school software provider it owns. (Like Orovia Group, CPOMS sells its products on a SaaS basis, and ECI Partners is targeting an enterprise valuation equal to a high-teens multiple of its EBITDA.)

Last June, this publication unveiled London-listed outsourcing giant Capita’s plans to sell its Education Software Solutions (ESS) unit. In December, ESS was acquired by Montagu Private Equity, which merged the business with ParentPay, a platform that facilitates transactions between families and schools. (The merger between ESS and ParentPay is under review by the UK’s competition watchdog.)

After Capita announced its intention to auction ESS, a number of its competitors began pursuing mergers and sales.

In October, iSAMS, the management information system (MIS) provider of choice among British private schools, was acquired by IRIS, a private equity-backed software group, in a deal reported exclusively by EducationInvestor Global.

The month prior, Arbor Education and The Key, competitors to ESS and iSAMS, merged, and buyout group CBPE Capital purchased a minority stake in the joined-up entity – a transaction also revealed by EducationInvestor Global.

Meanwhile, private equity-backed players, such as Juniper Education (parent: Horizon Capital), Supporting Education Group (Intermediate Capital Group, which also co-owns IRIS) and The Access Group (TA Associates) have been hoovering up education software providers.

Date published: 25 March 2021

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