Source: Morningstar, Marten & Co. Note 1) Based on Morningstar estimate

About OCI

OCI gives its shareholders access to private equity investments made by Oakley Capital (Oakley). Oakley is a private equity investor with a focus on European mid-market investments (€100m–€1bn plus enterprise value). It invests in what it believes to be high-growth private companies and has built up a track record of NAV and share price returns of about 137% over the five years ended 31 July 2024.

Much of this can be attributed to the EBITDA growth that Oakley helps to drive within the portfolio, an annualised average of 14% over the first half 2024, unchanged from 2023.

Four key sectors – technology, consumer, education, and business services

Oakley takes controlling stakes in companies that are operating in one of four key sectors – technology, consumer, education, and business services. It says that these companies should be benefitting from ‘mega-trends’ that will help drive revenue growth such as growing global demand for quality education; business shift to the cloud; consumer shift to digital search and online spending; increased regulation; and outsourcing.

Partnering with business founders

Where it can, Oakley seeks to partner with business founders, backing what it believes to be proven leaders and running businesses it thinks have a high potential for value creation, through structures that ensure alignment with Oakley’s goals (72% of all Oakley’s deals have been founder-led). Often, founders will introduce Oakley to new opportunities, and they are also often prepared to entrust their own money to Oakley funds, having contributed about €300m to Oakley Funds to date.

First through the door

Oakley says that building a rapport with these business founders is key. Oakley is often the first outside institution to provide capital to these businesses. It is bringing expertise to help them professionalise, and providing the capital that they need to grow.

Uncontested deals

74% of the deals that Oakley does are uncontested. It says that the entry multiple is not inflated by a competitive process, but rather reflects the trust that the founder is placing in Oakley, and the fact that they are prioritising culture over price.

Leveraging new technology

Digital disruption and internationalisation are key themes. Oakley says that disruptive business models that take market share rather than rely on market growth make them less reliant on economic cycles. By shifting business models to a digital world – migrating it to the cloud, for example – Oakley says it can help the companies boost productivity and grow their bottom line. Digitalisation also helps with international expansion, providing access to markets without the expense of establishing a physical presence. Businesses tend to end up with a higher proportion of recurring/subscription revenue, which also helps improve their valuation.

Typically, Oakley will take a controlling stake, which gives it greater ability to deliver positive outcomes. Oakley is using new in-house expertise in financing deals to help optimise capital structures. It often introduces new talent to businesses. It also helps support bolt-on acquisitions, which it says are a key source of growth for some of its investments.

Cross-fertilisation of ideas in areas such as AI

Oakley also leverages the expertise that it has gained from other deals to apply it to new deals in new regions. For instance, in digital marketplaces, where Oakley first invested in German energy switching site Verivox in 2009 before backing price comparison websites and property portals in Italy and Spain. More recently, it has begun to focus on AI. Oakley’s Touring Fund, backed by OCI, is investing behind the next generation of software powered by AI, providing early-stage growth capital to revenue-generating businesses, typically at Series B and C level. Insights gained through these investments are shared across the portfolio.

In an environment where over-leveraged companies are facing higher borrowing costs, and public equity markets seem averse to providing funding for businesses, the volume of small and mid-market private equity deals (Oakley’s sweet spot) is rising. Oakley says it is entering new investments at attractive multiples, and has no shortage of potential deals, but has also demonstrated that it can achieve profitable exits in this market.

Education

A $10trn sector by 2030

There are many reasons why Oakley feels that the education sector is one of the most attractive markets for private equity. This is a large and growing market, as Figure 2 shows, total global expenditure on education and training is forecast to hit $10trn by 2030, after growing by an average of 4.3% per annum since 2000.

A significant proportion of this is delivered by the private sector, although the degree to which this is the case varies significantly by country, as Figure 1 demonstrates. As in most things, the US represents the largest market (about $1.4trn in 2021). This is a highly fragmented market. For example, there were 30,492 private schools in the US in the 2019-2020 academic year (which compared to 98,469 public schools).

Figure 1: Percentage of national GDP spent on education in 2020

Source: National Center for Education Statistics

Oakley observes that this is a non-cyclical and inflation-resilient sector. It feels that parents have a high willingness to pay, tend to commit to this expenditure for their child’s entire school life, and will sacrifice other spending before cutting back on education. It says that reputation and results are a key factor when choosing schools – which creates a barrier to entry.

Oakley believes that it is also true that education entrepreneurs guard their reputations jealously and so look for empathetic partners when looking to grow their school. Most of Oakley’s education investments are founder-led businesses.

Globally, a growing middle class is creating new demand. Established schools with good reputations have been able to establish satellite operations to satisfy this demand. For example, the UK’s Independent Schools Council says that there are 129 overseas campuses of its member schools catering for 93,257 pupils, the bulk of which are in China (51), the UAE (13), and other parts of Asia and the Middle East.

Oakley observes that there is a growing demand for English language education as parents see it as necessary precursor to their kids getting into English language universities and then higher paid jobs, as English continues to be the global language of business.

It says that there is also growing recognition of the importance of retraining and upskilling the workforce to adapt to the modern economy. The market for higher education is changing and demand for corporate training is expanding, it adds.

As the US data in Figure 4 illustrates, the price of education (in this case higher education) has tended to rise faster than the rate of general inflation.

The cost of school fees has long been rising above inflation, the impact of VAT may not be that big

In the UK, according to the Independent Schools Council, the average cost of a term’s fees for a day school is £6,021, up from £2,285 in 2000 (+163%). By contrast, the increase in CPI over that period was about 83%. There are many different estimates of the impact of the planned imposition of VAT at 20% on school fees in the UK from 1 January 2025. In 2023, The Institute for Fiscal Studies estimated that an effective VAT rate of 15% (20% offset by a school’s expenditure on VATable goods and services) would lead to a 3–7% reduction in private school attendance.

Oakley suggests that, as some of the following OCI case studies illustrate, it is also important to note that technology is transforming the ways in which educational services are delivered.

The Inspired story – seven years to create a €3bn business

OCI first backed Inspired in 2013 when Oakley Fund I invested in a new vehicle, then called Educas Investments LLP. The new business was headed up by Nadim Nsouli, who had a track record of building education businesses at Providence Equity Partners. From the initial acquisition of four private schools in South Africa, Inspired grew organically and by acquisition – undertaking 25 bolt-on acquisitions. By 2019, Inspired had become one of the leading global players in the private school market, with over 45,000 students across 64 schools. Fund II sold down part of its stake (at an 80% premium to book value) and in April 2020, OCI’s remaining interest in Inspired was sold for £114m, a 25% uplift to the previous carrying value.

IU Group

IU Group has been once of OCI’s most successful investments, and it is still growing

Given the recent success of this investment, IU Group (iu-group.com) has been covered in some detail in earlier notes. However, to recap, this is already Germany’s largest university group, offering a mix of around 350 degree courses online and on campus, and around 600 often-part-time adult training courses, in co-operation with corporate partners.

This is a founder-led business. In January 2018, Fund III made an €84.6m investment in what was then Career Partner Group, partnering with CEO Dr. Sven Schütt and his management team. OCI’s share of that investment was £30.6m. At the time, Career Partner Group had fewer than 15,000 students.

Every year since, student numbers have grown rapidly. The online element meant that the disruption from COVID was minimal (if anything, it provided a boost). In March 2024, OCI said that IU had around 146,000 students enrolled.

In 2021, the business was rebranded as IU Group and the company placed increased emphasis on growing its international operations. That year, refinancing freed up excess capital from IU Group, resulting in a £29m inflow to OCI in February and a further £36m in December.

In 2023, the company established toeholds in the UK and Canada with the acquisitions of The London Institute of Banking & Finance, UK and University of Fredericton, Canada. These give it accreditation rights that will allow it to offer a broad range of courses in these countries, beyond these institutions’ traditional offering.

In June 2023, Fund III realised its entire investment in IU Group for £240m, 13.7x its investment. The buyers were a continuation fund backed by co-investors and Fund V. OCI’s share of the Fund V investment was about £66m.

Since October 2023, students in online courses provided by the IU International University of Applied Sciences have had access to an AI learning buddy – Syntea. Syntea was developed by IU and trialled from November 2022 in its English-language online courses before being rolled more widely. Students get 24/7 access to verified answers to their questions about academic content. Teachers can add further relevant content, for example further links, to the checked answers. The AI can engage in open-ended dialogue, helping students to delve deeper into a topic. Syntea helps guide students through the subject and also allows students to check their progress through tailored pre-assessments and exam training.

In April 2024, IU Group launched a tie-up with Schülerhilfe (see below) to allow IU students to study at over 600 Schülerhilfe centres, complementing IU’s c.40 sites.

Schülerhilfe

Schülerhilfe (schuelerhilfe.de) is a leading provider of after-school tuition in Germany, Austria, and Switzerland. Students are usually taught in small groups of between three and five, but one-to-one tuition is also available.

Again, this is a founder-led business. The roots of the company date back to 1974, but since 2010, the business had been run by Dieter Werkhausen. Having already secured backing from Paragon Partners in 2009 and Deutsche Beteiligungs in 2013, he was keen to continue to grow the business. In July 2017, Oakley invested €85.9m into the company through Fund III, OCI’s share of that was about £30.8m. At the time, Schülerhilfe was providing lessons to around 125,000 students in around 1,000 centres. Those figures have grown modestly since.

Oakley says that there is strong demand for Schülerhilfe’s services, as the German education system lets students and parents know well in advance which subjects they need to work on to achieve target grades. Schülerhilfe claims that 92% of its students improve by at least one grade on average after six to 12 months.

Tackling this through private tuition is the norm, but the market for tuition was highly fragmented. The finance secured from Oakley allowed Schülerhilfe to open new centres. It has also supported a steady conversion of franchised centres into more-profitable company-owned ones.

COVID-19 forced a temporary closure of these centres in 2020, and that helped drive the development of Schülerhilfe’s online operations. Although there was a temporary impact on new customer registrations, the business bounced back strongly once restrictions were lifted, helped in part by a government voucher programme in Germany. By end 2023, enrolments were 37% higher than pre-COVID levels.

Bright Stars

Bright Stars (brightstars-nurseries.com) is another founder-led business within OCI’s portfolio. It describes itself as a collection of unique children’s nurseries across the United Kingdom and Ireland.

In June 2021, Fund IV made a £26.3m investment into a nursery group called ICP Education, investing alongside the existing management team, executive chairman Stephen Booty, CEO Dominic Harrison, and CFO Clare Wilson. At the time of the acquisition, ICP had 44 nurseries and served around 6,000 children (less than 1% of the available market). Oakley and the management team saw an opportunity to consolidate this fragmented market.

In 2022, with 68 nurseries in the group, ICP Education was rebranded as Bright Stars. At the time, Stephen Booty said that the plan was to continue to seek to acquire nurseries in affluent areas, offering 65 or more places. New additions to the group retain their own branding and culture. However, there is an emphasis on maintaining high standards – one third of Bright Stars’s nurseries were rated Ofsted Outstanding in 2023, versus a UK average of 15%.

By the end of 2023, Bright Stars had almost 100 nurseries and was expected to surpass that number early in 2024.

Ocean Technologies (Seagull and Videotel)

Two purchases made by Fund IV in 2019 – Seagull and Videotel – allowed Oakley to establish a presence in maritime-related education. The business was renamed as Ocean Technologies in 2021. The acquired businesses provided compliance, risk, and safety training. This formed the nucleus of what became the Ocean Learning Platform in 2021. However, as Oakley grew this business, the focus broadened beyond education. Through a series of bolt-on acquisitions, it transformed the business from an e-learning specialist to become a leading global provider of human capital management and operational software to the maritime industry. In 2024, Oakley reclassified it from the education to the technology sector. Then in September 2024, Oakley announced that the business had been sold to Lloyd’s Register, generating about a 2.7x gross money-multiple return and look-through proceeds to OCI of about £50m (see page 13).

Affinitas Education

Affinitas Education (affinitasedu.com) is focused on the K12 (ages 4 to 16) market.

Affinitas was founded by Victor Lundsten. His prior experience included running the investments and business development function at Inspired Education. In August 2022, Oakley Capital Fund IV invested in the business, OCI’s share of the investment was about £10m.

The business got underway by buying nine schools with a collective 8,500 pupils in Spain and Mexico, with a plan to continue to build the portfolio through acquisition.

Similar to that of Inspired, Affinitas Education’s focus is to provide the necessary investment to improve schools, their facilities, and IT. It invests in training, and aims to introduce best practice, thereby optimising the administrative aspects of the business, while leaving individual schools to focus on providing the best education to students.

Today, Affinitas has 18 schools, mainly in Spain and Mexico but including the British International School in New York, and the International School Brescia, in Italy.

Thomas’s London Day Schools

Fund IV made an investment in Thomas’s London Day Schools (thomas-s.co.uk) in April 2023. OCI’s share of this investment was £14m.

Oakley is backing Tobyn and Ben Thomas, the sons of the original founders of the business. Thomas’s has a 50-year history, growing from a kindergarten in a local church hall into a group of over-subscribed and interconnected independent day schools and outdoor centres in the UK and Austria, teaching more than 2,000 children from the ages of two to 16.

Some of the new funding from Oakley has been put towards the creation of Thomas’s College on Richmond Hill in southwest London. The college will open its doors in September 2025 and will eventually cater to pupils from 11–18.

ACE Education

ACE Education offers career-enhancing courses in niche sectors

ACE Education (ace-education.fr/en) provides higher education for students building careers in so-called ‘passion’ subjects that help build up the skills necessary for the growth of key European industries such as luxury fashion, tourism, and sport. The core of the business is in France. The combined business now comprises 45 campuses, serving over 8,000 students.

Patrick Toauti established AMOS, a French sports management business school, in 2005. Oakley invested in ACE Education in 2017, transforming the company through three bolt-on acquisitions and has since reinvested alongside Amaury (a French sports media group) to benefit from the business’ strong growth and the attractive opportunities for further buy and build.

Asset allocation

At 30 June 2024, OCI had net assets of £1,249m. The net value of the individual fund investments plus the direct investments totalled £1,256m. OCI had cash of £128m offset by £135m of drawings on the revolving credit facility and other working capital.

At 30 June 2024, the underlying portfolio was valued on an average EV/EBITDA ratio of 16.4x (in line with that of end December 2023) and the net debt/EBITDA ratio was 3.9x, down from 4.2x at end December 2023.

Funds

Figure 8: OCI by fund at 30 June 2024

No new fund commitments have been made by OCI since we last published.Figure 8 gives more information on OCI’s commitments by fund – both the original commitment and the amount outstanding at end June 2024, and – where appropriate – the realised returns generated.

The investment in North Sails is comprised of equity valued at £52.1m and preferred valued at £145.4m.

Within the pre-existing portfolio, £6m was invested into Affinitas to support its acquisition of Grupo Base, and £5m to support its acquisition of the British International School of New York. Phenna has completed a number of bolt-on acquisitions, OCI supported these with an additional investment of £13m. Touring I made three new investments in Daloopa, SafeBase and CuspAI, and made a follow-on investment in Exaforce.

Figure 9: Portfolio split by company as at 30 June 2024

Source: OCI, Marten & Co. Note 1) World Host Group was Webcentral

Recent new investments

Outside of education, Oakley has had a particularly busy first half of the year. Over the six months ended 30 June 2024, OCI made investments totalling £184m, £139m of which went to fund new investments and £45m for follow-on investments. OCI also benefitted from realisations of £4m, with a further £120m due to be received from its share of the sales of idealista and Ocean Technologies (see below) in the second half of the calendar year.

Alerce

Oakley Capital Origin Fund I bought a majority stake in Alerce (alerce-group.com/en), investing alongside Alerce’s founding family, including CEO Pablo Pardo Garcia. The family held onto a significant stake in the business. OCI’s look-through share of the deal was about £9m.

Founded in 1989, Alerce is a Spanish software business serving the transport, logistics, and courier service markets. It offers a product suite centred around its Alertran transport management system (TMS), with a comprehensive and modular portfolio of adjacent products such as ‘Senda’, which is designed to optimise last-mile deliveries.

Oakley says that Alerce’s solutions are mission-critical to its customers as evidenced by minimal churn and high levels of net retention. Alerce has market leading positions, working with around 200 blue-chip companies across Europe and Latin America. Around 60 of those have opted for Alerce’s ASPA SaaS solution.

ProductLife Group

In May 2024, Oakley announced that Fund V was making an investment in ProductLife Group (productlifegroup.com), a European headquartered but global provider of outsourced regulatory and compliance services to the life sciences industry.

Oakley is backing a team led by Xavier Duburcq. It sees an opportunity to support the business’ continued international expansion and accelerate investments into AI.

ProductLife Group services include development, regulatory affairs, market access, pharmacovigilance, quality management and digital transformation. Its clients mainly operate within the pharmaceuticals industry. The business has a diversified customer base with over 1,000 clients, including 75% of the 50 largest global pharma companies.

ProductLife Group has grown significantly over the last four years, completing 16 add-on acquisitions, and generating double-digit organic revenue growth. Today, it employs more than 1,600 people and operates across 150+ countries globally.

OCI’s look-through share of the investment was about £41m.

vitroconnect

In May 2024, Oakley announced the acquisition of vitroconnect, a German broadband open access platform that serves most leading German telco companies. Oakley made the investment alongside the company’s founder and CEO Dirk Pasternack and his management team. They are continuing to run the business. This was the first deal announced for Origin II. OCI’s look-through share of the purchase price was £19m.

vitroconnect is looking to benefit from increased penetration of fibre-to-the-home within Germany. The number of connected homes is expected to grow from 3m today (way behind European averages) to 29m by 2029 and 39m by 2035.

vitroconnect’s Carrier Aggregation Platform connects broadband providers with resellers, offering process automation, network operations, brokerage, and white-label services.

I-TRACING

In June 2024, Oakley announced that Fund V was investing into French cybersecurity firm I-TRACING (i-tracing.com).

I-TRACING was established in Paris in 2005 by Théodore Vrangos (now President of the company) and Laurent Charvériat (CEO). It previously received backing from Eurazeo and Sagard NewGen. However, Oakley is coming in to help support the company’s growth and international expansion.

I-TRACING’s team of around 700 cybersecurity experts is distributed across France, Switzerland, Malaysia, Hong Kong, China, Canada, and the UK, enabling it to support customers 24/7. It has been growing rapidly, with around 450 corporate clients, having more than doubled in size over the last three years. Organic revenue growth of about 30% per annum has been complemented by acquisitions. It has plans to add another 250 employees over the course of 2024 to support the growth of its business.

I-TRACING offers clients a one-stop-shop service including cyber defence, managed detection & response services, identity & access management, cloud security, and data protection and audit.

Oakley says that one of the company’s key differentiators is its premium Security Operations Centre managed services offering, protecting complex environments on a 24/7 basis.

On a look-through basis, OCI’s share of the deal is up to £39m.

Recent disposals

idealista

On 28 June 2024, OCI announced that Oakley Capital Fund IV had sold its stake in idealista, southern Europe’s leading online real estate classifieds platform, to Cinven in a transaction that valued the business at €2.9bn.

OCI’s look-through share of the proceeds was about £70m, in line with its valuation in the NAV at end March 2024. However, over the life of the investment, it generated a gross return of 2.1 x MM and c.22% IRR.

Oakley invested in idealista in 2021 alongside EQT, when Oakley’s Italian property portal, Casa.it, was combined with idealista’s Italian operations. Today, idealista connects around 60,000 real estate agents with over 38m unique monthly visitors, generating over one billion visits annually across southern Europe, making it a valuable tool for prospective homeowners and sellers in Spain, Italy, and Portugal.

Ocean Technologies

On 2 September, OCI announced the disposal of Ocean Technologies to Lloyds Register at a price broadly equivalent to its carrying value at 31 March 2024. OCI said that on a look-through basis, its share of the proceeds was likely to be about £50m. On that basis, Fund V made around 2.7x the amount that it originally invested in the company in 2019.

Performance

Figure 10: OCI performance over the five years ended 31 August 2024

Source: Morningstar, Marten & Co. Note: NAV based on Morningstar estimates which incorporate the last published NAV of 708p as at 30 June 2024.

As Figures 10 and 11 show, OCI’s NAV continues to grow, and over the long term is well ahead of peers and comparative indices.

Figure 11: Cumulative performance over various time periods ended 31 August 2024

Source: Morningstar, Marten & Co. Note: NAV based on Morningstar estimates which incorporate the last published NAV of 708p as at 30 June 2024.
Note 1) LPX Europe is an index of the share prices of listed private equity companies and therefore is most comparable to OCI’s share price returns.

H1 2024

OCI published a trading update covering the six months ended 30 June 2024 on 24 July. The fund produced an NAV return of 3.8% for the period. However, a slight narrowing of the discount meant that the return to shareholders was 4.2%. Returns would have been higher were it not for the strength of sterling – foreign exchange moves took about 1.8 percentage points off the NAV.

The interim report published on 1 September 2024 revealed that the three largest positive contributions to OCI’s NAV returns for the period came from IU Group (+£4.7m or 8p per share), Phenna (+7p), and Dexters (+6p), (with Cegid a close fourth, +5p).

• IU Group delivered year-on-year growth in revenues and adjusted EBITDA of 29% and 37%, respectively. Student numbers hit 146,000, up by 20%. IU Group is expanding outside of its core markets.

• Phenna made six bolt-on acquisitions in H1 2024 at an average entry multiple of less than 6x.

• Dexters’s lettings revenue grew by 13% year-on-year and its sales pipeline grew by 24%.

The three largest negative contributions came from TechInsights (-3p), Vice Golf (-1p), and Windstar Medical (-1p).

• TechInsights has been affected by slowing semiconductor sales (volumes down 10% year-on-year).

• Vice Golf experienced delays in its Q2 launch pipeline and implementation of Shopify. It also saw an uplift in customer acquisition costs.

• Windstar Medical’s business has seen higher gross profits but slightly lower margins. Cheaper private label products are doing better than consumer brands.

OCI’s two direct investments are said to be performing well, with an encouraging recent trading update from Time Out and North Sails continuing to build on its strong position in sails with two new acquisitions.

Cash and commitments

At 30 June 2024, OCI had net cash of £128m and an undrawn balance on its debt facilities of £56m. As described above, OCI is expecting £120m of proceeds from sales of investments in coming months. In addition, the recent interim report said that two exits are expected from Fund IV before the end of the year. The report also noted that the £223m of direct investments in Time Out and North Sails are expected to be realised in the short to medium term.

That is balanced against outstanding commitments of £805m (these were broken down by Fund in Figure 8 on page 10).

Premium/discount

Over the 12 months ended 31 August 2024, OCI’s share price discount to NAV ranged between 40.8% and 25.6%, averaging 31.1%. At the time of publishing, the discount was 29.5%.

Figure 12: OCI discount over five years ended 31 August 2024

Source: Morningstar, Marten & Co. Note: Incorporates NAV based on Morningstar estimates which incorporate the last published NAV of 708p as at 30 June 2024.

OCI’s discount has been on a narrowing trend since October 2022, but contrasts with the 4% discount that peer Hg Capital trades at, despite OCI outperforming that trust over the past five years.

Around 15% of OCI’s shares in issue are owned by retail investors. The board is contemplating moving trading in the company’s shares from the Specialist Fund Segment to the Main Market. That would broaden the range of investor platforms that permit dealing in the trust’s shares.

The board says that it would instigate share buy backs when it believes OCI has the appropriate liquidity to do so, taking into consideration outstanding investment commitments, the anticipated cadence of capital calls and future fund opportunities.

Previous publications

You can read these notes by clicking the links or visiting our website, quoteddata.com.

Figure 13: QuotedData’s previously published notes on OCI

Source: Marten & Co

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