The most interesting thing about Therese Rein’s divestment of the Australian side of her business is not that it says anything about ‘modern marriages’. (A woman having to sell her hundred-million-dollar business to prevent the appearance of a conflict of interest should her husband become Prime Minister? A quintessentially modern dilemma any couple can relate to!)
It’s the nature of the business and how much it’s worth. Ingeus describes itself as a “workplace participation provider“. Much of its Australian business revolves around WorkDirections, which is a ‘job broker’, farming beneficiaries to companies looking to hire.
The business obviously depends rather heavily on government welfare policy. In the last couple of years, with tightening pressure on beneficiaries to look for work, business has boomed. Between 2005 and 2006, profits increased by a factor of eight – from $1.1 million to $8.8 million, on the back of a 38 per cent revenue rise. [David Crowe, "Sacrifice won't go unnoticed", Australian Financial Review, 26/5/07]
Now that Rein has to sell, the question arises as to how much the business is actually worth. It’s a tricky question. Because of the nature of the business, its earning assets are mainly intangible – how do you value the earning potential of tough welfare-to-work policies? By the simplest measure, based on a formula used for other personnel firms, you multiply earnings by ten – so around $90 million. [Crowe, again] But because company valuations are based on expectations of future profitability, and in this case profitability depends on a new Labor government not fiddling around with the Job Network too much… well, you can see the problem.
This kind of company, which exists in a netherworld between the state and the private sector, is increasingly common. Take ABC Learning. [On Friday I heard Sue Newberry present a work-in-progress paper on ABC, written with Sandra van der Laan and Deborah Brennan, at the inaugural workshop of the Australian Working Group on Financialization. All the following info comes from that presentation.]
ABC is the most successful of the child-care companies that have listed on the Australian Stock Exchange since the restructuring and extension of federal childcare funding in 2000. It owns more than a quarter of all day care centres in Australia, and has expanded into the United States, New Zealand, Hong Kong and the Philippines. In 2006 it made a profit of $81 million, off revenue of $600 million. CEO ‘Fast’ Eddy Groves [pictured above] became Australia’s richest person under 40 in 2006.
The really interesting stuff is in the valuation of its assets. ABC doesn’t own the physical property of most of its childcare centres, instead leasing them off a related property trust. ABC itself values its total assets at $2.3 billion. Only $600 million of that is in physical assets. The rest, $1.7 billion, is in intangibles, mostly put down to its centres’ childcare licences. Now, childcare licenses are not exactly assets that can be bought and sold on their own, and they aren’t that expensive to obtain. Effectively, that $1.7 billion is a valuation of the profitability of ABC’s position in the market, of the fact that it will continue to reap a large proportion of the government’s childcare subsidies. Presently government subsidies total more than $1.8 billion per year.