Private equity firm Graphite Capital plans to sell UK-based children services operator Compass Community in the coming months, EducationInvestor Global and HealthInvestor UK hear from six sources.

Mid-market M&A advisory firm Harris Williams’ recent appointment, Dr Julian Feneley, is rumoured to advise on the process, according to two sources familiar with the situation.

The company will be marketed off an EBITDA of around £20 million, according to an advisory source. However, according to two other sources, this EBITDA might be too high and based on forecasts, while the company currently generates EBITDA of around £12-14 million.

The sale is likely to reach an 8-13x multiple valuation, this publication understands. Among the possible buyers that are expected to circle the asset there are several mid-market private equity firms, according to one source.

Account filings for the year ending March 2021 put Compass Community’s revenue at £81.5 million – up 16% compared to the same period in 2020. The group generated gross profit of £36 million in 2021, up 20% from 2020, and operating profit of £14 million, up roughly 27% from 2020.

Compass Community has a long history in private equity hands. In 2012, August Equity invested £18 million in the company, at the time known as Compass Services for Children Group.

Under August’s ownership, Compass Community became the third largest independent fostering agency in the UK with more than 1,000 fostering placements and 12 residential homes.

In 2017, August sold its majority stake in the business to Graphite for an undisclosed amount.

Graphite invests in mid-sized businesses based across the UK. Since 1981, it has raised and managed nine funds, seven of which are now fully or largely realised. 

The private equity firm is backed by a pool of LPs including global pension funds, insurance companies and endowment funds. Nearly 39% of the capital raised by its latest fund, Graphite Capital Partners IX, comes from the UK, 44% from Europe and the balance from the US and Japan.

Compass Community and Harris Williams did not return our request for comment. Graphite Capital declined to comment.

Date published: 25 March 2022

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