Pinned straw:
04-Nov-2025: FY25-Trading-Update.PDF
Their SP has halved in the past 12 months, as shown above, and look at their 10 year graph (below):
Over $4/share down to 70 cents/share today. That ten year graph is using weekly data points, but they did close at 70 cents/share today.
This is what I said here about GEM five and a half years ago - the straw is still here, but marked as stale:
09-Apr-2020: I've never liked G8 Education much - mostly because they were started by a trucking company owner and loaded up with people from financial backgrounds rather than with any experience in childcare - and that refers to both the board and the senior management. The main reason I didn't like them however is that they were serial aggregators - they were another roll-up model, buying private childcare centres and rolling them into their corporate structure; The business model was simply arbitraging the higher multiple that the market was prepared to attribute to childcare centres that were part of a listed company versus private childcare centres. I had similar concerns back in the day about other roll-up models like GXL and RFG. They always come undone eventually. They either get into serious debt to fund their acquisitions or they just keep issuing more shares. Remember ABC Learning? It all works fine, until it doesn't.
As these companies grow, they have to make bigger and bigger acquisitions to move the dial. If the arbitrage opportunity is good enough, they attract competition. They will then often try to takeover that competition, and they will usually pay too much to do so. The big issue is that at some point they will either run out of acquisition opportunities, or those acquisitions will be too expensive and will therefore not make good business sense to do. Then the growth stops dead. They have to rely on organic growth instead of acquisitive growth.
If their business model was based on expansion via acquisition (buying private companies at less than what they would be worth as part of a listed company, i.e. the private/public price arbitrage) and they have neglected to focus enough attention on their existing business during the period of rapid expansion - as most of them tend to do, then they end up with a rather ordinary business that is ex-growth. That results in a negative market re-rating, and that can often have negative repercussions for their sizable debt - and associated lending covenants. It's like a house of cards, and they all collapse eventually. GEM has taken longer than I expected, and they may never actually go broke, but then again, they also might. One thing is clear, they haven't been a good set-and-forget investment. Roll-up models rarely are. Almost never in fact.
--- end of five and a half year old straw extract ---
It all still applies. Once the arbitrage opportunities run out, they are left with cost cutting as the main or only way to boost profits, and that generally results in lower quality of care in the Childcare space, which doesn't work well as a business model over decent time periods.
Aggregators or roll-up models always have limited periods of success. In other words, they work, until they don't, and then they tend to be very poor businesses. And poor businesses generally don't have rising share prices.
GEM has not been a good business for many years now. And it's not going to get better from here, IMO, it's only going to get worse.
Discl: Never held.
29th April 2026: G8 Education (GEM -31%) - To suspend ~40 centres as occupancy falls to 56.4%, hit by cost-of-living pressures, lower birth rates and sector oversupply.
G8-Education-Trading-Update.pdf
All roll-ups unravel. It's predictable, and once it starts unravelling, it just gets worse.
Disc: Not holding.
I have long warned here and elsewhere about roll-up models only being good for a short period during which the business plan centres around buying private businesses at lower multiples than what the market attributes to similar businesses that are listed on the stock exchange, so those acquisitions get an immediate multiple uplift by being incorporated into a public (listed) business structure (such as RFG or GEM when they were flying), but that's a sh!tty business model to quote Gaurav Sodhi (from Intelligent Investor) and it only works while there are still private businesses available at lower multiples. And extra entrants into the space (which inevitably happens in these cases) reduces those opportunities by increasing competition and driving up the prices of prospective acquisitions. So acquisitions inevitably get larger and larger, and multiples paid increases accordingly, and then the business model becomes totally busted at some point because what they're left with is a business that can only grow due to organic growth, not acquisitive growth, and they struggle big time to generate organic growth This is what happened to G8 Education.
Additionally, GEM were not particularly good childcare centre operators, like ABC Learning before them, with both businesses going very pear-shaped once the original business model (as I've just outlined) collapsed, and then because they couldn't generate any organic growth, they resorted to even more cost-cutting, which lowers service quality, so they then become a provider of last resort because they are clearly focused on overheads and costs, not the children they are looking after. They are run by accountants and the kids are just units that have a cost attached to them and the company's primary focus is on reducing that cost.
What brought ABC Learning undone was their debt. GEM don't have those levels of debt, so their death/decline will be much slower, but it's all south east, as their chart clearly shows. It's not a company that is growing and gaining market share. The founders have made their millions and moved on and what's left is a basket case of a company. As with RFG.
RFG's 12 month SP graph is not too much different to GEM's - both have SPs heading south-east at a good clip.