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.
