Value Creation ProgrammePost-Acquisition Value Creation for a PE Portfolio Company
Audience: Investors£1.9m
ANNUALISED EBITDA IMPROVEMENT
25+
SETTINGS ACROSS 4 LOCAL AUTHORITY AREAS
6-month
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 original investment thesis projected £2.8m of EBITDA growth over the first 24 months through a combination of organic revenue improvement and operational efficiency. At the 18-month mark, EBITDA was flat against the acquisition baseline despite revenue growing by 11% through bolt-on acquisitions and fee increases.
The investor was concerned that the management team was growing the top line without improving the underlying economics of the business. The board needed an independent assessment of where margin was being lost and a structured programme to recover the trajectory before the 24-month review.
What Litus Did
Litus was retained on a six-month value creation programme, beginning with a Margin Diagnostic across the full estate and followed by hands-on implementation support alongside the management team.
01
Diagnostic Phase (Weeks 1-4)
The diagnostic examined every setting across the five standard areas. The scale of the group required setting-level analysis across four local authority areas, three different fee structures inherited from pre-acquisition brands, and a workforce of almost 600 staff with varying terms and conditions.
Three root causes of the flat EBITDA were identified:
First, the bolt-on acquisitions had been integrated operationally but not financially. Three acquired settings were still running on their pre-acquisition fee structures, which were significantly below the group average. The revenue they contributed was masking the margin they were eroding.
Second, funded hour economics varied dramatically across the four local authorities. Two authorities were paying rates that covered cost. Two were not. The group was delivering an increasing 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 management restructure had added an operations director, a compliance lead, and two area managers. These roles were necessary but the cost had not been offset by operational efficiencies at setting level.
02
Implementation Phase (Months 2-6)
The value creation plan addressed each root cause in sequence:
Fee harmonisation was completed across the full estate within the first two months. The three underpriced acquired settings received fee increases of 6-12%, phased over two terms to manage parent communication. Retention impact was monitored weekly and was within the expected 2-3% range.
Funded hour economics were addressed through a combination of cost reduction (ratio optimisation and room reconfiguration at the loss-making settings) and revenue enhancement (restructuring session patterns to increase the proportion of fee-paying hours in the settings with the worst funded hour economics).
Central overhead was right-sized through a management span review. Area manager responsibilities were redistributed to increase the average span from 5 settings to 7 settings, removing one area manager role through natural attrition. Professional fees were consolidated and renegotiated, saving £78,000 per year.
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The Outcome
Over the six-month programme, the group moved from flat EBITDA to a run-rate improvement of £1.9m annualised. The improvement came from three sources: £680,000 from fee harmonisation and restructuring, £740,000 from funded hour and occupancy optimisation, and £480,000 from central overhead reduction and workforce cost management.
The 24-month investor review was conducted with a clear value creation narrative supported by setting-level data showing the operational changes that had driven the improvement. The board had visibility over the levers that had been pulled and the sustainability of the EBITDA trajectory.
Key InsightRevenue growth through acquisition does not equal EBITDA growth. Without setting-level margin discipline, bolt-on acquisitions can dilute the very returns they are supposed to accelerate. The advisory fee represented less than 2% of the annualised improvement delivered.
Engagement duration6-month retained programme.
Deliverable£1.9m annualised EBITDA improvement with setting-level evidence for investor review.