Kip McGrath's Rejected Takeover Bid Reflects a Cash Generation Gap

A tutoring franchise's board turned down Crimson Education's offer, backed by fund managers who argue reported earnings badly understate the business's genuine cash flow.

30 Sep 2026 · 3 min read

Kip McGrath Education Centres, a global franchise tutoring business with a founder-led track record dating to 1976, became the target of an unsolicited takeover offer from Crimson Education that the board rejected, capping a year in which fund managers argued its reported earnings badly understated genuine cash generation, backed by a share buyback and meaningful director purchases.

A cheap acquisition backed by a proven chairman

HD Capital Partners said it acquired a material amount of shares in Kip McGrath, a global franchise tutoring business operating since 1976, noting chairman Damian Banks had previously led Konekt, which delivered a 2,593 percent share price increase from 2013 to 2019 before being acquired by APM, with HD Capital acquiring its shares at 3 times enterprise value to cash EBIT.

The Chairman, Damian Banks, previously led Konekt which delivered a 2,593% share price increase from 2013-2019 before being acquired by APM. We acquired our KME shares at 3x EV/Cash EBIT.

— HD Capital Partners, Monthly Report, November 2025

Earnings that understate genuine cash generation

Merewether Capital said Kip McGrath reported flat revenue of $15.2 million and net profit up 15 percent to $1.5 million, arguing the company's reported earnings understate its genuine cash generation, since historical depreciation and amortisation runs much higher than actual cash reinvestment requirements, with cash earnings of $2.5 million and a seasonally stronger second half putting it on track for around $6 million for the full year. DMX Asset Management said Kip McGrath had repurchased around 2 percent of itself over six weeks, following a rational capital allocation framework of buying back shares because management recognises the market is undervaluing them, with meaningful purchases below intrinsic value enhancing returns for remaining shareholders.

KME's reported earnings understate the cash generation of the business as historical depreciation and amortisation is much higher than the cash re-investment requirements of the business.

— Merewether Capital, Monthly Report, February 2026

A downgrade the market overreacted to

DMX Asset Management said the stock fell 10 percent after a downgrade caused by a number of minor variables moving modestly against the company, together resulting in lower expected earnings for the June financial year, believing the market overreacted initially, and was pleased to see the company continue its buyback program alongside meaningful director purchases following the fall. Merewether Capital said the weaker than expected trading update revised full-year guidance lower on adverse currency movements and slightly lower lesson numbers as consumer confidence deteriorated, though the silver lining was the strong cash flow the business continues to generate, implying a free cash flow result of $4 million to $5 million once known cash spend is adjusted for.

An unsolicited takeover offer, then rejection

DMX Asset Management said the stock rose 33 percent after Kip McGrath received a 73 cent off-market takeover offer from Crimson Education, a global university admissions consultancy and education business, describing it as a long-term holding it likes for its strong global network and brand reputation developed over more than 50 years. By August, DMX had added to its holding, noting Kip McGrath, having previously downgraded, delivered a respectable full-year result and is positioned well following a strategic reset and exit of its US operations, with the board rejecting the Crimson takeover offer and merger arbitrage specialists showing interest.

KME received a 73c off-market takeover offer from Crimson Education, a global university admissions consultancy and education business. KME has been a long-term holding of ours; we like KME's strong global network and brand reputation it has developed over 50 years.

— DMX Asset Management, Monthly Report, July 2026

What fund managers say they are watching next is whether Crimson Education returns with an improved offer or the board's rejection stands, delivery of the $4 million to $6 million free cash flow range guided, continued buyback and director purchases as signals of undervaluation, and the benefits of the strategic reset following the exit of US operations.