Chief, you are correct that GEM might benefit nicely (in the...

Chief, you are correct that GEM might benefit nicely (in the short term) from the AFJ deal. With 33.5M shares, GEM might reap somewhere between $3.5M and $7M in cap gains (depending on GEM's average purchase price for the shares). Of course, this is before tax. To put in perspective, cap gains from the AFJ shares might represent between 10% and 20% of GEM's annual EBIT.

As for future growth, several questions. First, not clear if Anchorage will retain current AFJ leadership and, if so, whether it will allow them to continue paying a premium for childcare centres. My guess is Anchorage will halt the premium price buying and may boot some execs. Anchorage is a private equity firm, so it dolls up the business by CUTTING COSTS -- that means avoiding overpaying for new childcare centres and, instead, focusing on maximizing return on existing assets. (Remember, Anchorage is responsible for the Dick Smith deal.) Anyway, typical private equity practice could be good news for GEM -- i.e., return to reasonable pricing for new acquisitions.

Second, my understanding is that the childcare market is still quite fragmented and that some small operators may suffer from the increased costs of new gov't requirements. I doubt GEM will jump in size as much as it did two years ago, but my guess is that it will find more acquisitions to satisfy growth expectations.

Third, a long shot, but maybe Anchorage will divest some of assets that GEM thinks it can manage more effectively.