5 Ways to Maximize the Value of Your Vocational School
If you own a vocational school, it’s important to understand the ways you can maximize the value of your school when you sell.
Over the last 12 months, there has been a lot of mergers & acquisitions (M&A) activity in the education sector. COVID forced schools to adopt distance learning, which has completely changed the operating model for well-run schools. Schools are now able to deliver high-quality educational outcomes without geographic restrictions or needing to invest in expensive brick and motor classrooms. This has allowed vocational schools to increase revenues while decreasing costs.
Strategic buyers dominated education sector M&A activity in 2020 and early 2021, but private equity groups and sophisticated investors are now seeing vocational schools with distance learning platforms as a new technology-enabled service platform, like EdTech.
If you own a vocational school and are thinking of selling, now may be a good time to explore your options. Unfortunately, many owners miss out on maximizing the value of their schools because they are unfamiliar with what buyers look for. Here are five things you can do to help you ensure you receive top dollar for your vocational school when you decide to sell.
Understand Who the Most Likely Buyers Are for Your School
Buyers of businesses with revenues of $1 million or less tend to be individuals who live within a 50-mile radius of the company they are interested in. However, as the size of your school increases, strategic buyers become more interested —and these buyers are typically not local. For vocational schools with revenues of $5 million and up, financial buyers, like private equity groups, as well as strategic buyers become interested.
What does this mean for you? If you own a vocational school with $1 million or less in revenues, your buyers—besides being local—will likely be first-time business owners, who are essentially looking to buy a job. As a result, your marketing materials and sales pitch should address the concerns these buyers have.
However, owners of larger businesses should be prepared to address the concerns of more sophisticated, financially-driven buyers. That means to maximize your sales price for your school, you will need to develop an offering package, including a pitch book, a financial model, and set up a virtual data room, complete with detailed historical financial statements and other information these buyers will ask for.
Understand the Value of Your Vocational School from a Buyer’s Perspective
Did you know that 80% of privately-owned companies that are listed for sale, don’t sell? The number one reason most schools don’t sell is that the seller has an unrealistic expectation of value.
As a result, one of the most important things you can do before starting the sales process is talk with an M&A advisor who has extensive experience selling vocational schools. They can provide you with an objective, third-party opinion of value using the same methodologies that buyers use. An M&A advisor who is active in the education sector can also give you advice and guidance on pricing trends in the industry and value drivers.
The more educated you are about the M&A market and vocational school valuation principles, the more likely you are to be successful when you sell your vocational school.
Set Personal and Financial Goals
An essential step in ensuring a successful exit is to have a clear idea about how much money you need to meet your financial goals. While this number is not related to the value of your school, it will help you evaluate opportunities and make the right decision.
For example, if you know you need $3 million, after-tax, to retire, and your school is valued at $2 million, it may not make sense to sell now. It may make more sense to spend the next 2-3 years preparing your school for sale so you can increase its value and meet your financial goals. Have an honest conversation with your financial advisor or wealth manager and do some retirement planning to figure out what you need to retire before you decide to sell your school.
Use the Right Process to Maximize the Value of Your School
The best process to use to sell your school depends on its size and market appeal. If your school has less than $2 million in revenue, the best process is the traditional business brokerage approach that includes listing the company on multiple M&A websites and responding to buyers when they request additional information.
However, for companies with over $2 million in revenues, it may make sense to run a controlled auction process. In this case, your M&A advisor will put together a targeted list of financial and strategic buyers that may have an interest in your company.
He will contact them directly and send them with a teaser that provides an overview of your school, but without disclosing its name or other identifying information. If buyers are interested, the broker will have them sign a nondisclosure agreement and send them a formal offering package.
A typical marketing program for a vocational school might involve contacting 100-200 potential buyers simultaneously. The goal here is to get as many buyers as possible looking at your company at the same time and to make them aware they are in a competitive process.
This has several advantages. First, it speeds up the transaction timeline, ensuring a faster and more efficient closing. Second, it ensures buyers put their best offers on the table first because they know other buyers are also bidding. Last, it provides you with negotiating leverage because you will most likely have multiple offers to choose from at the end of the process.
Don’t Take Your Eye Off the Ball, Get Help
Regardless of the size of your vocational school, the most important thing you can do is work with an M&A advisor to run the sales process. Running a sell-side process is time-consuming and you don’t want anything to distract you from the day-to-day operation of your school because a dip in revenues or net income during the sales process can have a big impact on the value of your business.
Selling a vocational school may be the single most important decision in your lifetime, so make sure you work with someone who is an expert in the process and can coach you along the way.
By Rich Jackim, Managing Partner at Jackim Woods & Co.
Jackim Woods & Co. is a leading mergers & acquisitions advisor focused on providing senior-level attention and flawless execution to clients in the education sector nationwide.
Rich Jackim is an experienced mergers and acquisitions advisor and a retired mergers and acquisitions attorney. He has over 20 years of experience advising owners of middle-market companies and their boards of directors on mergers, acquisitions, and divestitures. During his career, Rich has been involved in over 70 mergers or acquisitions of middle-market companies worth over $2 billion. Rich is also the author of the critically acclaimed book, The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners.
To arrange a free, confidential conversation about your options, please contact Rich Jackim at (224) 513-5142 or rjackim@jackimwoods.com.
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Year-End Checklist for Selling a Business in 2022
If you are thinking of selling your business in 2022 (or even 2025), taking the time now to get prepared and organized, will save time and effort in the future.
Here is a list of 12 things every business owner should review each year:
1) Financials: Every year, try to improve the quality and timeliness of your company’s financial reporting. The year-end is a good time to talk with your CPA about how to clean up your profit and loss statement and balance sheet and eliminate any line items that are no longer relevant. Work with your CPA to document and categorize any one-time expenses or personal expenses, so your CPA and your M&A advisor can help you calculate an accurate adjusted EBITDA for your business.
2) Due Diligence Checklist: Build a relationship with an M&A advisor and ask for an example of a basic due diligence checklist. Have someone in your company assemble as many of the items as possible and store scanned copies in a digital file storage area like Google Drive or Dropbox. This will save you an enormous amount of time and stress, especially if a great buyer suddenly shows up at your door. Work on it a little bit at a time (or delegate it) so it is not overwhelming.
3) Delegate: Think about your business and life goals. Are there things you want to achieve but have not been able to do because you are too busy doing other things? One way to improve the value of your business is to enable it to run without you. As a business owner, your role is to be a strategic planner and visionary. That means you need to delegate as much of your operating responsibilities as possible. Think about what you can delegate in the coming year.
4) M&A Advisor: Check in with an M&A advisor who you trust to discuss market trends, multiples, the pros and cons of your business, and get a valuation done. You should ask your M&A advisor to update your valuation every year so that you can make informed decisions about your options.
5) Sales and Marketing: Step back and consider your company’s overall sales and marketing strategy. If something is not working, try something new. Eliminate programs that aren’t working. Document everything so you can describe the strategy to a potential buyer.
6) Reduce Expenses: Have someone review expenses. Everything from paper costs to insurance premiums. Get new estimates on all major expenses. Every dollar you save goes to the bottom line, which is multiplied by the deal at the time of the sale. So if you can reduce your expenses by $20,000 next year, the value of your business increases between $60,000 and $140,000 depending on the industry you’re in and the size of your business.
7) Website, Social Media: If your website looks like it was made in 1998, it is time to invest in a new one. While we all know not to judge a book by its cover, most new customers and potential buyers judge you based on how your business presents itself online. So make sure your website looks professional, has accurate information, and works. If you have news, blogs, or social media posts, make sure they are up to date.
8) Tax Planning: Check in with your CPA and attorney to explore what you can be doing now to reduce or eliminate any capital gains taxes that will be due when you sell your business. Effective tax planning takes time but can save you a lot of money in the end.
9) Inventory: Make sure your inventory is current. Write off and get rid of any obsolete inventory.
10) Maintenance & Cleaning: Look at your business through a buyer’s eyes. Does anything need to be painted, cleaned, or thrown out? If a buyer called and wanted to meet with you tomorrow, would your business show well? Also, your employees will appreciate working in a clean, well-lit, and positive environment.
11) Financial Planning: Talk with your financial advisor to determine how much you need to net from the sale of your business in order to meet your financial goals. This does not affect the value of your business, but it does
12) Check in with your kids: The holidays are a good time to have an honest and open conversation with your kids about their goals and to see if they would be interested in taking over your business. Don’t wait until you’re ready to sell, to find out your kids always thought they would take over the family business.
It is not possible to address every item on this list at once. But, if you address one or two items a month, it will help improve the value of your company and make selling your business in 2022 much smoother.
Rich Jackim, is the founder of Jackim Woods & Co and the Exit Planning Institute. He’s also the author of The $10 Trillion Opportunity – Designing Success Exit Strategies for Middle Market Businesses.
If you are thinking of selling your business in 2022, contact Rich for a free, confidential, no-obligation consultation to learn about your options.
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Valuations for Title IV Schools and Training Companies at Record Highs
Valuations for vocational schools and training companies are at record highs now. As business performance rebounds, buyers are competing for strong performing businesses. That has led to an increase in the number of education-related businesses that were sold in Q3 of 2021. The number of education deals that closed in the third quarter increased 17% over the previous quarter, and 11% from the same quarter in 2020, according to Jackim Woods & Co, which tracks and analyzes vocational school and training company sale transactions.
2021 Education Industry Seller Confidence Index
Valuations for vocational schools and training companies are at record highs now because seller confidence is up. As the economy rebounds, owners of vocational schools and training companies are returning to the market, feeling more confident they can sell their schools and training companies for a good price and less willing to wait until the COVID pandemic is over. Seller confidence increased to 57 out of 70; that’s up from 45 in 2020. This is the highest seller confidence level since the high of 58 in 2018. Today 49% of the respondents believe they can receive a higher sale price for their school or training company today compared to a year ago, and 46% of respondents said the top factor motivating their confidence was an improvement in enrollment and revenue.
The average revenue for vocational schools and training businesses that were sold in the third quarter was $755,000, up 6% from the same time last year. Meanwhile, buyers of education-related businesses, especially Title IV schools, are paying record-high prices for businesses that performed well during the pandemic. The average sale price in the third quarter hit a new high of $1,780,000; that’s 17% higher than the previous year and 40% above pre-pandemic levels.
With current valuations above where they were pre-pandemic, many school owners are thinking now may be the right time to exit.
2021 Education Industry Buyer Confidence Index
Valuations for vocational schools and training companies are also at record highs because buyer confidence is up. Buyers noted that there is a limited supply of profitable well-run schools and training businesses on the market. In addition, several buyers noted that because of the shift to online learning, schools will be able to expand their geographic reach while reducing the cost of delivering educational services. The combination of these two factors signals significant growth opportunities and higher margins for well-run schools and training companies in the future. As a result, buyer confidence increased to 60, up significantly from 48 in 2020 and only slightly above the buyer confidence level of 59 in 2018.
It is interesting to note that demand for high-performing vocational schools and training businesses is increasing. According to Rich Jackim, Managing Partner of Jackim Woods & Co., “buyer inquiries on our education-related listings are up 39% since the same time last year. However, many business owners are putting off selling until their schools or training companies have fully recovered, so the supply of profitable, well-run schools is still limited. This is driving up values and makes it a sellers’ market.”
If you are beginning to think about selling your training business or Title IV vocational school and would like to explore your options, please contact Rich Jackim at rjackim@jackimwoods.com for a FREE, confidential, no-obligation consultation.
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