by Ari Nathanson
Last week, in a single transaction, Trimaran Capital Partners acquired Educational Services of America Inc. (ESA) and completed the company’s first add-on deal. To complete the transaction, the New York-based private equity firm invested approximately $21 million in convertible preferred equity, with an option to invest an additional $14 million for approximately 84% of ESA. Under the terms of the transaction, the firm also obtained a majority of the seats on the company’s board of directors.
Trimaran’s investment in Nashville, Tenn.-headquartered ESA provided the necessary financing for the company’s parallel acquisition of Spectrum Center, a San Francisco-based provider of special education services to children and schools. The combined company, with an aggregate revenue upwards of $35 million, is now the largest provider of day school services for children with special needs in the U.S., supplying its services to approximately 2,300 students in 27 schools.
Founded in 1999, ESA operates out of its own facilities-based in Alabama, Arizona, California, Florida and Ohio providing its services to children with mild learning disabilities such as dyslexia, hearing impairments and some types of emotional and behavioral issues. Spectrum serves students with more severe difficulties, which include autism, physical disabilities and emotional disorders. Founded in 1975, Spectrum operates six campuses and four collaborative classrooms in the San Francisco Bay Area. Both companies will retain their individual brand identities.
In addition to being Trimaran’s first visit to the educational services sector, this transaction represents one of the firm’s smaller acquisitions in its portfolio. But with the first add-on already acquired, coupled with the fact that one out of every 12 children in the U.S. is diagnosed with a learning disability, Trimaran has laid out a growth plan for ESA that could multiply its current investment in the company up to three times by October 2005.
“We have 10 acquisitions identified [for ESA] that we’re either holding discussions with or that we’ve already signed letters of intent on. Some are mom and pop organizations and some clusters that will help provide a critical mass to ESA,” said Trimaran Managing Director Jay Bloom. Over time, the firm will likely have between $50 million and $60 million invested in ESA, including the $14 million of optional equity listed in the terms of the transaction, he added.
“This is an area where there is no major force [of competition]. So in terms of future acquisitions, we have a pretty long runway to build up our momentum before we reach significant opposition,” Bloom said.
Equity for this transaction came from the firm’s Trimaran Fund II, which closed in 2000 with $1.04 billion. Upon completion of this deal, approximately three-quarters of the fund’s capital has been put to work. When asked about the possibility of a roman-numeral-three replacement fund, Bloom declined to comment.