GoodStart is social enterprise in practice
Monday 10th May 2010 09:07am
By Networx Brisbane
Commentary surrounding the impacts and effects of the global financial crisis never included scenarios of non profit organisations acquiring for-profit businesses.
Perspectives on social innovation
This is exactly what happened in Australia just months ago when the concept of social enterprise was put into practice. The acquisition by a mission driven organisation is an Australian first which focuses on early childhood education as the means to reduce social disadvantage.
So what happened?
The Australian government-led privatisation of Australian childcare in the1990s resulted in company's building profitable empires of childcare centers. One of these organisations and a key provider of early childhood services, ABC Learning Centers Limited (ABC Learning), was carrying $1.2b worth of debt when it fell victim to the global financial crisis in late 2008.
Private equity professionals quickly identified ABC Learning as a potential acquisition target. So did Australian social visionary Michael Traill. The founder of Social Ventures Australia, a Harvard graduate and former private equity titan, Michael was contacted by entrepreneur Evan Thornley who queried whether converting the ABC Learning business into a 'for purpose' operation would be an option. What ensued was the formation of a unique cross sector, non-profit syndicate called GoodStart Limited.
As Michael explains: “We recognised this as a once in a generation opportunity to significantly change Australia's childcare sector for the better. It is now well documented by Australian and International research that effective early learning is vital to positive social outcomes later on in life regardless of family background. The most important period of learning is the first five years of life.”
Apart from the philanthropic potential of the project, the economics made sense. GoodStart's winning bid - rumoured to be around $100m - for 678 ABC Learning centres beat other private equity bids for the $600m turnover business.
The funding model included:
- National Australia Bank debt package - understood to total in excess of $100m including guarantees
- A $15m loan from the Australian government, and
- Investments from individuals and a group of non profit organisations, including Mission Australia, Brotherhood of St Laurence, Benevolent Society and Social Ventures Australia. The individuals who contributed included numerous well known philanthropists including Robin Crawford, a founding director of Macquarie Bank, Seek founder and BRW Young Rich-lister Matthew Rockman, and former Microsoft boss Daniel Petre.
Traill notes the contribution of individuals and non-profit organisations was critical: “What made this last capital layer so unique was that we structured it to attract these individual investors:
subordinated debt with a commercial, albeit below-market, return”.
GoodStart Limited Chairman Robin Crawford later revealed that the philanthropists would be paid a non guaranteed 12 per cent a year on their unsecured notes (compared with commercial rates of 15 per cent plus) and repaid at the conclusion of the eight year term The government loan was also to be repaid over 7 years at the government's cost of finance (then at 6.4 per cent).
Myself, along with our team at HSC & Company believe GoodStart may very well provide Australia, and indeed other nations, with the blueprint for partnership funding that works to deliver social outcomes practically, not just theoretically.
Traill says that GoodStart is important for three main reasons:
- It provides evidence that social capital providers represent the emergence of a new financial asset class
The individual philanthropists behind GoodStart are prepared to accept reasonable commercial returns below conventional market rates provided there is clear evidence of social impact.
By building and educating this market it has the potential to unlock substantial additional capital. In particular, if social investment can be defined as a legitimate asset class it will attract not just philanthropists but the mainstream Australian superannuation industry.
- GoodStart represents a model of collaboration and partnership
Emerging global experience in social investment highlights the need for new models of partnership across the sectors to ensure the blend of business and nonprofit sector skills, capital access, government funding and policy engagement. These collaborative models are essential to build largescale innovative organisations that can address entrenched social policy issues.
GoodStart founding members knew they had to apply the strictest business disciplines to run an operation with a $600m turnover. The success or failure of this social venture will depend on its ability to meet twin goals: to ensure returns to capital providers are met and that the enterprise addresses the issues of community need and disadvantage.
Is there a lack of capital for ventures like this?
GoodStart demonstrates that in fact capital is available. Why? Firstly, a commercial return, albeit below market rate, is available. Secondly, partnering with likeminded individuals and organizations is critical to establish a critical mass. Thirdly, GoodStart asked the federal government for a loan – other ABC Learning bidders did not. Finally, a clear and detailed plan demonstrated how the GoodStart syndicate would turn a previously profitable empire into a sustainable, non-profit, social-impacting business.
1. Michael Traill, 'Social Ventures Australia'
2. 'A capital idea' (Michael Traill), 'The Australian', 3 March 2010
3. 'Charity takeover of ABC Learning' (Natasha Bita), 'The Australian', 10 December 2009
© HSC & Company - All rights reserved
By Phil Hayes St-Clair
Phil Hayes St-Clair will be presenting at Networx's 'Sponsorship & Community Investment - Both Side of the Coin' on Wednesday, 19 May. he will be discussing the following:
- Corporate community investment - what does it mean and is it the same as Corporate Social Responsibility?
- The two key factors that influence organisations to invest in the community: Reputation and Social Impact
- 4 paths that organisations can take to create a compelling community investment strategy
- The 5 question fact pack every CEO should be armed with that describes their company's corporate community investment strategy
You will learn how to:
- Do a quick audit and assess your organisations community investment program
- Manage unsolicited requests from non-profit organisations
- Tell the story of your organisations community investment activities (and their impact) to different stakeholders
Networx event: Sponsorship & Community Investment - Both Side of the Coin
Wednesday, 19 May 2010, 6.00pm-8.30pm | Event & Booking Information