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Unlikely Takeover: A Third Way to Scale Social Enterprise

Author: Jon Hugget
Published Date: 7 May 2013

By Jon Huggett for NonProfit Quarterly

When we try to scale social enterprise, we usually try one of two paths: growing small organizations or spreading ideas across a range of organizations to scale impact. One path less traveled is to leapfrog through converting a large business into a nonprofit social enterprise, which can more easily and effectively thrive and grow at a larger scale.

There is no practical reason why such a strategy should not be considered more regularly. Large social enterprises are not new, especially in distributed businesses; consider the Cooperative in the UK or Mondragon in Spain, each with US$19B revenue. In the developing world, microfinance has spawned brawny social enterprises like BRAC of Bangladesh, with its half-billion dollars in revenue.

Here’s the story of how Social Ventures Australia led a consortium of nonprofits to create a scale social enterprise out of the wreckage of a bankrupt business, and what lessons can be learned from their efforts.

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When Evan Thornley, a businessman and member of the state parliament of Victoria, Australia, heard that ABC Learning, a for-profit business with $600M in revenue, was floundering, he saw a “once-in-a-generation opportunity.” Could the chain of day-care centers serving over 70,000 children across Australia—a full 15 percent of the market—also deliver early learning under new ownership?

Michael Traill, the head of Social Ventures Australia, a $10M non-profit, saw a chance to leapfrog to scale while improving the quality of what was being offered. SVA nurtures small social enterprises, and acquiring ABC would be the largest takeover yet of a for-profit by a non-profit. But Traill had an eye for the task; he was no stranger to M&A. Before founding SVA, he had spent 15 years leading private equity at Macquarie Bank.

To read the full article, please follow the link to NPQ.

Up-to-the-Minute Context:

Speaking to members of the SIX network recently, Huggett said:"If money could be raised for a social "PE" buyout fund, the challenge might be finding enough deals at the right price. Goodstart was lucky to be able to buy assets at fire-sale prices. ABC was bankrupt, with no white knight to the rescue. I know of a housing trust in S London that bought a for-profit. The Cooperative has bought assets from for-profits. A social "PE" buyout fund might need to wait around like a vulture to snap up distressed assets in sectors where nonprofits have a competitive or comparative advantage."