Renaissance sells NatCol / YooBee to ACG for $14 million

The Board of Renaissance has reached a conditional agreement with Academic Colleges Group to sell the assets and business undertaking of its Yoobee School of Design subsidiary.

Subject to a number of customary conditions, the company says the sale does not relate to the Yoobee Retail business, which will remain a Renaissance subsidiary.

Commenting on the proposed sale Colin Giffney, Chairman of Renaissance says: "ACG is well known in the New Zealand market and we believe that Yoobee School of Design will benefit from being a part of ACG's broader education business."

An education provider with approximately 5,000 students currently attending its ten schools, ACG operates five private schools in Auckland, delivers the Foundation Studies Certificates for the University of Auckland and AUT University and also owns private schools in Vietnam and Indonesia.

"We admire Yoobee School of Design for the quality of its teaching and the progressive nature of its courses," says Ian King, CEO, ACG.

"We look forward to welcoming YSD's students and teachers into the ACG Group as the cornerstone of our move into Tertiary education in New Zealand."

Announced via an official company statement to shareholders, Giffney claims the base price for the enterprise of $14m will payable on completion of the transaction, with the deal structured around YSD's move to its Christchurch campus in December.

The key terms of the proposal, which is expected to be completed after March 31, are:

• An earn-out based on EBITDA achieved in the 12 months to September 2014

• Under this earn-out the sale price will be increased by the amount EBITDA exceeds $2 million, up to a limit of $1 million

• Achievement of the full earn-out would therefore result in a sale price of $15 million

• Any earn-out entitlement would be payable shortly after the amount of that earn-out entitlement was determined, which is anticipated to occur during the fourth quarter of 2014

• Certain of Yoobee's current liabilities will be assumed by Academic Colleges Group and deducted from the cash received on completion (about $550,000 net)

• YSD is planning to move its Christchurch campus in December and the transaction has been structured such that the move and the expenditure will take place before settlement

Giffney adds that some Renaissance group contracts may be novated to Academic Colleges Group, and in these casesm Renaissance will make prepayments for services, which will continue to be provided under those contracts to the Yoobee Retail business - those prepayments (about $400,000) will be deducted from the cash received on completion.

It is expected that the Renaissance shareholder meeting to approve the proposal will be held in late November or early December 2013.

As a result of the agreement, the Board of Renaissance provided the following update to shareholders on trading in the year to September 30 2013.

Education

"The Yoobee School of Design second half result will not be as strong as was anticipated in our half-year announcement," wrote Giffney. "Considerable investment has gone into our online learning project and we now have 6 courses up and running."

Depsite this, Giffney admitted that revenue generated was lower than budget. "The drop off in international students impacted the results in 2013," he added.

"Management has focused on this area and there are signs that prospects are improving.

"Notwithstanding this the core business is performing well and while accounts for the year to September 2013 have not been finalized the EBITDA, after adjustment for unallocated head office costs is expected to be around $2.0m."

Retail

Admitting that Yoobee Retail has continued to struggle, Giffney told shareholders that with "year on year unit sales in our key Apple products of iMac, MacBook and iPad, have increased by 13% yet total dollar sales are down 20%, such has been the price effect of new products such as the iPad Mini."

Across the whole Apple range gross margin has fallen from 11.6% to 7%, while service has held reflected to some extent this decline in the selling prices.

"The board believes the model for a dedicated chain of Apple-only retail stores is no longer viable," Giffney wrote. "It continues to look for ways to re-position the business."

In the year to September 30 2013 Giffney claimed there will be significant non-cash write offs for goodwill (already recognized at the half year), fixtures and fittings at closed stores and tax assets which no longer meet the accounting criteria of being able to be utilized in the forseeable future.

"More importantly redundancies and other payments associated with store closures have swelled the cash loss from trading," he added. "There will be provisions for on-going lease payments on premises that have been vacated.

"It is not possible to be accurate at this stage on the full level of write offs. The figure that will be most relevant to shareholders is the net cash consequence of these actions."

Group

Giffney concluded that the reduction in group overheads has largely tracked the projections made at the half year and as a consequence, "clearly these costs are still too high for the businesses that remain."

"Directors cannot easily address the long-term future of the Company until the outcome of the transaction with Academic Colleges is completed and a viable model for retail is found," he wrote.

"This has been a protracted process but should now come to a conclusion in the short term."

With the year-end net interest bearing debt standing at around $3m, and other liabilities relating to severance of lease and other commitments net of inventory and other receivables amounting to approximately $1.5m, Giffney signed off by saying: "Ultimately Directors would like to return cash to shareholders."