Red Flag

This announcement below pertains to the acquisition of Michelle Clarke's childcare centre, a director of Mayfield. Whilst I have no issue with the EBITDA multiple there has to be a "claw back" provision if the CY18 multiple is not achieved as it's an inside transaction subject to an independent report (who pays for the report ? ) and shareholder approval. The second issue is Dean and Michelle Clarke currently hold some 10% of MFD. 10% is just acceptable but prefer owner operators of mini caps to have at lease 15% and ideally 20% or more. This leads to the next question - why isn't she taking an equity component in the deal ? Clearly she has a better alternative use for the $2.3M proceeds than invest any % back into Mayfield even at these low current share prices. The numbers are very close on say a 20% equity component ( dilution in issuance of shares ) and funding the purchase all cash ( borrowings at the very good interest rate MFD have ). I think the management of Mayfield run a good operation with tight cost control and currently are not overpaying for acquisitions. They are also very experienced childcare centre operators. However it's very disappointing and I believe damaging for Michelle not to take an equity component. Reason is down the track when they are seeking support from small cap funds for future capital placements one the first questions will be " Why didn't Michelle take any equity on the sale of her $2.3M centre ? "

Mayfield Childcare Limited is pleased to announce the acquisition of a further long day care centre in Melbourne's Southern suburbs. The centre provides for 75 registered places, and is expected to contribute approximately $480K in EBITDA in CY18. Based on the purchase price of $2.2 million this represents a multiple of 4.6x CY18 EBITDA inclusive of payroll tax (4.2x excluding payroll tax). The acquisition will be funded from Mayfield's existing debt facilities.