Value Creation ProgrammePost-Acquisition Value Creation for a PE Portfolio Company
Audience: Investors£1.9m
ANNUALISED EBITDA IMPROVEMENT
25+
SETTINGS ACROSS FOUR LOCAL AUTHORITY AREAS
6 months
RETAINED PROGRAMME
3 levers
FEE HARMONISATION, FUNDED HOUR OPTIMISATION, OVERHEAD REDUCTION
The Situation
A PE-backed nursery group with more than 25 settings across the South of England was 18 months post-acquisition. The investment thesis projected £2.8m of EBITDA growth over the first 24 months through organic revenue improvement and operational efficiency. At 18 months EBITDA was flat against the acquisition baseline, despite revenue growing 11% through bolt-on acquisitions and fee increases.
The investor was concerned that management was growing the top line without improving the underlying economics. The board needed an independent view of where margin was being lost and a programme to recover the trajectory before the 24-month review.
What Litus Did
A six-month retained programme, a margin diagnostic across the full estate first, then implementation alongside the management team.
01
Diagnostic, Weeks 1 to 4
The diagnostic examined every setting across the five areas. The scale of the group meant setting-level analysis across four local authority areas, three fee structures inherited from pre-acquisition brands, and a workforce of almost 600 on varying terms. Three root causes of the flat EBITDA were found.
First, the bolt-on acquisitions had been integrated operationally but not financially. Three acquired settings were still on their pre-acquisition fee structures, well below the group average. The revenue they brought in was masking the margin they were eroding.
Second, funded hour economics varied widely across the four authorities. Two paid rates that covered cost, two did not, and the group was delivering a rising volume of funded hours in the loss-making authorities because the acquired settings had a higher proportion of funded children.
Third, central overhead had scaled faster than the settings. The post-acquisition restructure had added an operations director, a compliance lead and two area managers. The roles were needed, but the cost had not been offset by efficiencies at setting level.
02
Implementation, Months 2 to 6
The plan took each root cause in turn. Fee harmonisation was completed across the estate inside two months. The three underpriced settings took increases of 6% to 12%, phased over two terms to manage parent communication, with retention monitored weekly and held inside the expected 2% to 3%.
Funded hour economics were addressed by cutting the cost of delivery, through ratio optimisation and room reconfiguration at the loss-making settings, and by restructuring session patterns to raise the proportion of fee-paying hours where the funded economics were worst.
Central overhead was right-sized through a span review. Area manager responsibilities were redistributed to lift the average span from five settings to seven, removing one role through natural attrition. Professional fees were consolidated and renegotiated, saving £78,000 a year.
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The Outcome
Over the six months the group moved from flat EBITDA to a run-rate improvement of £1.9m annualised. £680,000 from fee harmonisation and restructuring, £740,000 from funded hour and occupancy optimisation, and £480,000 from central overhead and workforce cost.
The 24-month investor review ran on a clear value creation narrative, with setting-level data showing the operational changes behind the improvement. The board could see the levers that had been pulled and how durable the EBITDA trajectory was.
Key InsightRevenue growth through acquisition is not EBITDA growth. Without setting-level margin discipline, bolt-on acquisitions can dilute the returns they were bought to accelerate.
Engagement durationSix months, retained.
DeliverableDiagnostic report, sequenced value creation plan, and a setting-level evidence pack for the 24-month investor review.