Firm’s Investment Strategy

Innervation remains a theme driven investor, driving superior returns from proprietary deal sourcing, with an exclusive focus on education.

Innervation has been investing in the Education sector since 2016. During this nine year period, the Firm has acquired 52 Early Years Settings, built the UK’s leading Early Years apprenticeship training provider, acquired seven SEND Schools (Melrose) and provided funding for three green field SEND schools, the first of which opened in 2023 (Melrose).

Innervation currently deploys capital in 3 themes to maximise returns: 

Theme One: Invest in “upskilling” and expanding early years childcare capacity for its high impact potential

The Firm’s most recent exit from Innervation Education & Training demonstrates the benefits of taking a long term, thematic approach: this leading early years apprenticeship business was transformed over an 8 year holding period. 

Early Years apprenticeship revenue increased tenfold, reflecting:

1. an unwavering focus on building the market leader in Early Years; 
2. a relentless commitment to quality with 90% learner satisfaction & 78% quality achievement rates, which is industry leading; 
3. +78 customer NPS score and +93 employee NPS, which are world class; &
4. 95% customer retention. 

This operational excellence provided the foundation to scale the platform as lifetime customer value exceeded customer acquisition cost by 9x. These marketing metrics underpin future growth in a fast growth vertical. 

Supporting Education Group (“SEG”) acquired Innervation Education & Training in December 2024. Lorna Newbould, who founded the business in 2008, will remain as MD post deal. We wish her and her team every success in the future and look forward to our continuing association through ICPEducare as it scales.

“I feel passionate about staff training and development; I’ve always found that investing in talent offers new and dynamic ways of getting the job done, none more so than with apprentices, as employers see their knowledge, skills and behaviours develop. I am looking forward to continuing our growth as part of SEG, who also share our commitment to improving society through education and learning.” – Lorna Newbould

The Firm will continue to focus on this “upskilling” theme with the planned launch of Equity in Early years, which will deliver training in less affluent areas of the UK where access to outstanding early years education is ten times less likely to be available to parents. 

Theme Two: Invest in “underserved markets” for superior returns and scalability 

The Firm launched its first Early Years platform, ICP Nurseries (now called Bright Stars Nurseries), in 2016. Innervation identified the “underserved” segment as founders looking for an exit. At that time there were less than a dozen groups with the capital and expertise to consolidate these “mom & pop” operators. Within six years ICP Nurseries were serving 6,000 children in 44 nurseries across England after merging with Cresswell Nurseries  in 2020.  ICP Education immediately became one of the largest nursery operators in England, with a third of nurseries rated Ofsted Outstanding and 98% rated Outstanding or Good. In 2021 ICP Education was also ranked as the 14th Best Place to Work in the UK by Glassdoor, across all categories. The Firm realised its investment in ICP Education in 2022, generating a £100 million gain. This reflected the continuing scarcity value of “bridge-heads” to enter this lucrative market. 

The ROI of investing in early years can be attractive both financially and socially. The first five years of life are the fastest period of human growth and development as 90 percent of a person’s brain development occurs by the age of five. Investing in the early years helps to break the cycle of poverty, address inequality, and boost productivity.

In the U.K. more than a quarter of four-and-five-year-olds (28 per cent) lacked the early communication and literacy skills expected by the end of reception year. The ‘expected level’ includes, for example, a child being able to express themselves clearly and read simple sentences.

ICPEducare is the Firm’s most recently launched Early Years platform: Innervation is backing the same proven leadership team it backed at ICP Education & Cresswell Nurseries. The objective is to build one of the UK’s leading EYS consolidation platforms within 3-4  years, delivering 2,000 places, serving 5,000 children. 

The Firm already has committed capital of £40 million to acquire 15 Settings (owned or in exclusivity) with c.1,000 places & over £7 million EBITDA.

Both platforms address the challenge to unlock latent “underserved” demand from working families with children under three years old with median income. This “underserved” segment has disposable income of circa £750 per week. icpeducare has identified that only 30% of families in this mid tertile demographic utilise 20-25 hours of formal childcare per week for 1-2 year olds compared to 60% in the top tertile.

The extension of 1,140 hours p.a of EYS entitlement funding to an estimated 50% of all families with 1-2 year olds is expected to increase demand for Early Years provision by 46% for 1 year olds & 33% for 2 year olds. The increase in funding rates and relaxation of staffing ratios is the inflexion point for the Firm deploying capital. 

Theme 3: Invest in “SEND”, helping the most disadvantaged children in society to realise their full potential & to avoid becoming NEET as an adult 

Innervation is also one of the Co-Founders, & Firm’s CIO is the largest equity investor in one of England’s leading independent Special Educational Needs & Disability providers, backing the same Chief Executive that led ICP Nurseries. The Firm’s strategy is to acquire seven to ten “bridge-heads” or Special Schools serving multiple local authorities & leverage these relationships to open two green field operations per annum in this fragmented market which addresses the higher acuity needs of around 30% of 500,000 children with Education & Health Care Plans.

Growth reflects increasing awareness of mental health issues and recognition that mainstream schools are unable or unwilling to meet the complex needs of children diagnosed with mental health challenges. Autistic spectrum disorder remains the most common type of neurodivergent behaviour.

Some LAs have seen their High Needs Block increase by nearly 90% since 2019; others have had a much lower increase of around 40%. That’s mostly down to the arcane methods that the DfE uses to calculate and allocate high-needs funding.

The cumulative local authority High Needs budget deficit is estimated to be around £2.3bn and is increasing daily. The latest estimates conclude that the cumulative local authority High Needs budget deficit across England will be around £3.6bn by March 2025.

This is reinforced by the number of local authorities that are working with the DfE through its intervention and support programmes – The Safety Valve Programme (34 LAs) and the Delivering Better Value in SEND programme (55 LAs). These programmes have been introduced to assist those local authorities with the greatest deficits.

Scalability

Innervation has the capacity to invest equity from £1 million to £20 million and has the risk appetite & patience to scale platforms from start-up to £25 million EBITDA, providing both capital and operating expertise, over a 5-10 year holding period.

“We buy complexity & sell simplicity”