Overview of the Business:
ABC Learning Ltd was an Australian provider of early child hood education services, founded in Queensland in 1988, that through its 18 centres was the largest single operator of early childhood education services in Australia by 1997. Led by founder Eddy Groves, ABC Learning Ltd continued to grow, through the opening of new centres and the acquisitions of rivals i.e. peppercorn Childcare in 2004 in which 450 centres were purchased for $340 million. “By 2008, ABC Learning was the largest provider of childcare, holding around 20 per cent of the long day care market and providing care to over 100 000 children” (Senate education, employment workplace relations committee, 2009).
In 2005 Mr Groves began an international expansion campaign through the acquisition of the United States based childcare operator; Learning Care Group Inc., expanding ABC Learning Ltd by a further 467 centres. The international growth continued with ABC learning acquiring La Petite Academy, in the United States, for USD$330 Million, and United Kingdom based Busy Bee Group Ltd, in 2006.
“In mid-December 2006, ABC’s share price hit its peak of $8.62, valuing the company at a staggering $3.4 billion and Groves’s personal fortune at around $300 million” (Thomson, 2008). But declining profit in the second half of 2007, down 42% to $37.1 million, saw the company unable to service its, then, $1.8 billion debt resulting in a margin call on shares held by Mr Groves and several board members. The company experienced a significant drop in share price, down 43% to $2.15. Trading in the company shares was suspended in early 2008, followed by the company going into receivership in November of 2008. Who are the main players in this business case?
The primary player in the centre of the collapse of ABC Learning Ltd is the founder and CEO Mr Eddy Groves. Mr Groves is currently involved in a court case, in the Brisbane Magistrates Court, regarding claims of poor disclosure, related-party transactions and miss-management from his role in the collapse of ABC Learning Inc.
Affected or involved with-in the collapse, would include:
The reported 16,000 staff employed with the company
Share Holders, with some 325 million shares listed on the Australian Stock exchange. -
Parents, whose children’s future enrolments in these centres are put at risk during the collapse, and the potential for impact on their own careers and income. -
The children themselves, potentially lacking social interactions and interpersonal development experiences, as well as initial learning essential in early childhood and cognitive development. -
Businesses that hold contracts with ABC Learning Ltd, including but not limited to: Cleaners, maintenance, provisions of consumables such as food and drink, accountant firms and insurers. -
Creditors, such as the banks, whom are owed an estimated $1.6 Billion, and any associated shareholders of these financial institutions whom may feel the impact of such losses. -
Tax payers and Government, whom at the time, were footing the bill to keep these centres operating and providing services, during the receivership proceedings.
Whilst the collapse of ABC Learning Ltd cannot be attributed to a single factor, or a specific period in time, there are several factors that certainly played a role in its demise, according to critics, and the benefit of hindsight investigations. ABC Learning Ltd relied heavily on government subsidies, declaring this as futures revenue, and essentially showing profitable business in centres that were in fact not profitable. Critics suggest that the rate of expansion was unsustainable, and that Mr Groves was “hell-bent on buying as many centres as he could, as quickly as he could […] the price paid was not important – the key was to keep growing at all costs” (Thomson, 2008). Continued spending, from equity in international acquisitions meant that the company had an...
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