The announcement of the sale of Nord Anglia's Leapfrog nursery business came as no great surprise. Consolidation is one of the dominant trends in this market and the deal comes hot on the heels of the sales of Asquith Court for £95m (Lyceum Capital sold this to Dawnay Day and Swordfish Investments) and Busy Bees for £71m (Gresham Private Equity sold this to ABC Learning). Neither was it surprising that the purchaser of NA’s nurseries was Australia's ABC Learning, via their subsidiary Busy Bees.

What was a surprise was the price. After paying £73m three years ago, NA will get just £31.2m. Dropping over £40m, even if this is on the book value rather than what was paid, is still a very large loss by any objective measure. NA also paid £13.2m for Jigsaw nurseries back in 2004. Compare this to what ABC paid for the smaller Busy Bees chain and what Lyceum Capital received for Asquith Court and you get a better sense of how desperate Nord Anglia were to get rid of this part of its business.

So within 8 months ABC Learning has created a very significant presence in the UK (as we predicted last year), Nord Anglia can pay down some debt and renegotiate its borrowings and Brian Myerson of Principle Capital Partners can sit back and figure out what to do with his 26% shareholding. Might he make another bid? It is now six months since his last tilt at NA, but with the share price rising in a falling market this may be a safer bet than deploying his activist funds elsewhere - temporarily.

But where does this leave NA? Their international schools business is doing well and the head of this section Ros Marshall is off to India on a fact-finding mission. Curiously, private schools are not allowed to be for-profit in India and we find it hard to believe that the growing nursery sector would be something the company will be jumping into. From what we can see after our recent trip to the subcontinent, the only real opportunities might be the training and similar non-schools sector. More likely is that NA may try to build opportunities for their Learning Services division headed by Jonathan Garnett. It looks as if one of the options under consideration is some sort of link with Learn Today, part of The India Today Group, a large print and TV group owned by Mr Aroon Purie.

What should also be on investors’ radar is that NA’s OFSTED school inspection contract is a now large part of their business (as it is at Tribal). These contracts are due to go to tender in 12-18 months, but the government’s plan to cut OFSTEDs budget by 30%+ will make it hard for companies like NA to make acceptable commercial profits on this work. It now looks like the Middle East, China and India are becoming the primary markets for NA, something which may make a trade/VC sale or delisting from the stock exchange more likely.

www.nordanglia.com