“Is Stagecoach Theatre Arts just ’resting‘ and waiting for the ’squeezed middle‘ to recover its spending power?”
Stagecoach Theatre Arts started trading in 1988 and now it operates the largest network of part-time performing arts schools in the world, with more than 40,000 students aged between 4 and 18. Much of its growth, like MacDonald’s and many others before it, has come from franchising. This strategy worked rather well and in 2001 the company floated on the Alternative Investment Market, valued at £12 million. Stagecoach Theatre Arts now operates in 10 other countries, but for the first six months of 2011 it has reported a loss of £66k on sales of £2.8m, which in turn are down 4 per cent.
Shirin Gandhi, a partner at Encore Capital a London-based buy-out company, has offered to buy Stagecoach, via a company he set up for the purpose called Lifeskills Education. He has offered to pay a price some 67 per cent above it’s trading price on 8 March – valuing the business at £6.5m. If the deal goes though at end of March, management will be left with about 37 per cent of the business and so for about £4m or so Gandhi will have acquired a controlling interest in Stagecoach.
Venture capital is very much a portfolio game, some investments you win, some you lose and hopefully, one or two do very well and make the rest of your efforts worthwhile. In Stagecoach, we have something that seems to have faltered and it may well be true that in straightened economic times this sort of thing is a luxury and that’s why it hasn’t lived up to the growth predicted at the time the business floated.
However, as an avid reader of the business press, it is interesting to see just how well luxury products have been doing of late. Just about any handbag company with a big brand and prices to match is laughing all the way to the bank and yesterday we heard that BMW has had a great year and expects 2012 to be even better. The better off in society are doing better than it may seem, but perhaps Stagecoach has relied too heavily on the “squeezed middle” that we hear so much about these days.
It will be very interesting to see if demand simply picks up with our economic recovery, whenever that might be. Or, maybe the management has just run out of steam and ideas after 25 years of toil and things will begin to improve as new people get involved in the business. Or, like The Game Group I wrote about yesterday, there just might not be as much demand for this sort of thing any more. If you are the market leader in anything you will always suffer most if the market changes.
Stagecoach’s most famous former student is Emma Watson of Harry Potter fame and there is no shortage of young people who would like to emulate her success. So, this investment may be a valid recovery play and Stagecoach might just recover with the economy. But perhaps the brand, which certainly has some real strengths, will have to accept that demand was always limited and now has shrunk and make more of the posh handbag and new BMW families where there doesn’t ever seem to be a shortage of cash. My feeling though is that the Stagecoach brand has peaked and it now needs to be repositioned to grow much further.