ParentPay revenues double as acquisitions kick in

ParentPay, the UK schools specialist, reported strong a strong increase in turnover in the year to November 2022 although losses widened, mainly due to higher interest payments on its £194m net debt. 

The group has leveraged a niche payment business into a strong position in vertical software. Revenue doubled in 2022 to £124m reflecting a full year contribution from ESS, the leading UK supplier of school management software, but also a material improvement in messaging and payment revenues following the pandemic. 

In 2021, Montague Private Equity bought ESS from Capita for an enterprise value of £400m. Montague then injected ESS into a ParentPay to create an enlarged group with complimentary payments and software products aimed at Britain’s 30,000 schools. The ESS acquisition didn’t go smoothly. The merger sparked a competition enquiry as school managers protested at a decision to force them to sign three-year software contracts. This combined with a late move to cloud delivery to spark considerable customer churn as this graph produced by Schools Week magazine shows.

A graph of a number of schools

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ParentPay management say the situation is now under control. The competition authorities have been mollified with additional break-clauses in ESS’s new, longer contracts. And ParentPay will invest £10m into the latest cloud versions of SIMS, its core school software, which it hopes will stem churn and persuade some former customers to return.  

ESS was the latest in a series of acquisitions. ParentPay Group now includes 14 companies spanning school management software, kitchen management and cashless catering, all of which generate transactions for the original ParentPay payment processing business. Although 93% of revenue is in the UK, ParentPay is keen to expand on the continent, having acquired WIS in Netherlands, and three businesses in Germany – EDV Service Schaupp (cashless catering), MensaMax and Pair Solutions (both school payment collections).

Post year end, ParentPay has bought two more small businesses – BlueRunner, cashless catering and meal management for £12m, and the assets of CEDAR, a student engagement solution for higher education for £650K. ParentPay sold nimbl, its child debit card, to Caxton for £900K. 

The Group now provides services to over 30,000 schools and educational establishments serving 10m students. 

In 2022, cost of sales doubled to £105m and administrative expenses rose 121% to £104m including staff costs of £42m. The Group now employed over 1,000 people including over one hundred in sales, at an average cost of £42K each, up 26% on the previous year. EBITDA before exceptionals, the company’s preferred measure of profitability, doubled to £45m. 

The original ParentPay school payments business has 11,000 customers in the UK, a market share of a little under 50%, and is highly profitable. Although education is free in Britain, ParentPay collects money for extras including lunches and school trips. Revenue was up 27% to £33m and operating profit grew 13% to £7.5m at a very creditable 23% margin. 

Overall, ParentPay Group reported pre-tax losses widening to £18m driven by increased amortisation of acquisition goodwill and higher costs to service the debt incurred with the ESS purchase. ESS was expensive and net debt was £194m at year end, roughly five times EBITDA. Interest expense was £17m, up from £6m in 2021. Management says that cash generation will be used to pay down the debt and, although more acquisitions are on the cards, these are likely to be less ambitions than of late.  

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