As was the case last year, COVID-related federal stimulus benefits are expected to be a powerful catalyst driving deal activity in 2021.
On December 27, 2020, Congress passed the Consolidated Appropriations Act, 2021, a $2.3 trillion stimulus bill, with $900 billion targeted specifically for COVID-19 relief. A portion of these funds will be used to extend the popular 2020 CARES Act SBA Debt Relief program.
According to Rich Jackim, Managing Partner of Jackim Woods & Co, the extension includes significant benefits that provide buyers with powerful incentives to acquire a business in 2021, including:
- Six months of payment forgiveness for SBA 7(a) loans closed after February 1, 2021, and before September 30th, 2021. This includes principal and interest up to a maximum of $9,000 per month. That’s a $54,000 benefit to buyers.
- The SBA will waive the guaranty fee that must be paid by borrowers. This fee is typically around 3% of the loan amount and will now be zero for loans closed before September 30th, 2021. That’s an average saving to buyers of approximately $4,500.
- The SBA is increasing the amount of loan guarantees to lenders from 75% to 90%. This will decrease the risk to lenders and help ensure liquidity for deal financing.
Jackim urges buyers who want to take advantage of the extension to learn from the mad rush to meet last year’s deadline. It required tremendous coordination between sellers, buyers, counsel, intermediaries, and lenders. “The lesson buyers learned last year is not to procrastinate and try to close at least 30 days before the deadline to accommodate potential delays,” says Jackim.
What does this mean for sellers? If you are thinking of selling your business, now may be the right time despite the pandemic. In addition to record low interest rates, the SBA Payment Forgiveness Program provides buyers with extremely low financing costs. Last year we sold two businesses for over asking price because the buyers were able to afford to pay more due to the 2020 SBA Payment Forgiveness Program. Once the pandemic is under control, it is unlikely buyers will have access to the same generous funding they have today.
To learn more about taking advantage of the 2021 SBA Payment Forgiveness Program contact Rich Jackim at 224-513-5142 or at firstname.lastname@example.org.Read More
Selling a business isn’t always about the price. It is not like selling a house where the most important factor is finding a buyer who is willing to make the highest offer. In fact, in my 25- years of being a business broker, I’d say that in roughly 20% of the deals, the purchase price was not the most important part of the deal. In the end, sellers are focused on achieving a combination of things, and maximizing the purchase price is only one of them.
Let’s examine some of the other most common goals and objectives sellers have.
- Maintaining the seller’s legacy. For one client, this means getting the buyer to agree to keep the company’s name (which was also the seller’s name) the same after the acquisition and not roll the company into the buyer’s parent company.
- Protecting Employees. For another client, they were the biggest employer in their small town, and the seller wanted to be sure that the buyer would not close down the plant, fire all the employees, and consolidate operations into their plant about 100 miles away.
- Participating in the Upside. Many clients want to remain involved in some fashion (usually in a passive or silent role) with their business after the sale. This often means accepting a lower price at closing but sharing in the company’s future growth going forward. This can be structured in several different ways, including a minority equity interest, a royalty on sales, or an earnout.
- Timing. Several of my former clients had very specific timing goals. In one case, it was due to the owner’s declining health; in another case, the owner’s son and key employee became disabled. In both cases, the owners wanted to sell as quickly as possible before the business suffered, and its value was diminished.
The best way to ensure that you achieve your goals when selling your business is to develop a comprehensive exit strategy before you start the sales process. This assures that everyone on your team is on the same page and is rowing in the same direction.
Rich Jackim, the Managing Partner at Jackim Woods & Co, is the author of the best-selling book, “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners”. He has advised over 200 clients to create their exit plans and helped over 100 clients sell their businesses for a combined value of over $500 million. The book’s success led Rich to create the Exit Planning Institute and created the Certified Exit Planning Advisor (CEPA) program. He has trained over 300 lawyers, accountants, financial advisors, consultants, and business brokers to develop exit plans for their clients.
If you are thinking of selling your business in 2021 or beyond, contact Rich Jackim at 224-513-5142 or email@example.com for a FREE, confidential, no-obligation discussion about your options.Read More
Private equity investors have shown strong interest in education-focused companies in the last few years, and not just in edtech companies. Several things are responsible for this renewed interest.
- For the last 10 years, digital transformations in the classroom has caused the ed-tech market to soar and has led to an increased interest in all types of education-related investments.
- The U.S. faces a significant skill shortage across the board as our population gets older and as our society emphasizes professional careers over skilled-based careers. This had led to severe shortages in healthcare, the trades, and transportation.
- Approximately 30% of for-profit career colleges or vocational schools went out of business between 2008 and 2016, removing excess capacity from the post-secondary landscape, which led to a resurgence of interest from private equity groups.
- For the last four years, both the Republican administration and the Democratic Congress supported private education, which resulted in an upsurge in funding by federal, state, and local governments.
On top of that, the education industry is very fragmented, with many early childhood centers, career colleges, and training companies still owned by individuals, leaving private equity firms a lot of room for roll-ups to consolidate the industry and realize significant economies of scale.
In addition, the K-12 market has become more complicated, with new technologies rapidly changing the game. So having the right people in charge who know how to design and implement digital learning platforms is increasingly important, representing a unique opportunity for private equity and other tech-savvy investors. As a result, buyers and investors are spending more and more time developing world-class management teams to ensure their portfolio companies can provide teachers and students with the digital platforms and technical support they need to succeed.
For the past decade or so, buyers have been hesitant to invest in post-secondary education companies — ever since the Great Recession and implementing the Gainful Employment Rule during the Obama administration. However, things have turned around completely in the last four years for several reasons, including…
- Over 200 poorly run for-profit career colleges closed their doors before the 2017-18 academic year — continuing a long downward trend. But happily, at the well-run schools that survived, enrollment and revenue are rising again.
- The regulatory environment is more favorable because the Gainful Employment Rule has been greatly scaled back – even though it remains on the books for now.
- Most for-profit career schools are demonstrating better results regarding educational outcomes like gainful employment, making them more appealing to investors no matter the level of regulatory oversight.
- The education sector tends to do well in a recession. In general, post-secondary education does well when the economy slows down and unemployed people go back to schools, so education-related companies are a good hedge against recession in any investor’s portfolio.
- Valuations of early childhood centers, K-12 schools, and career colleges remain reasonable compared to other education sub-sectors like edtech.
- It isn’t just investors who’re interested in this space – lenders have returned as well. For example, Renovus Capital financed the Rasmussen acquisition with SunTrust, CIBC, and Bank of Ireland. NCK Capital financed its purchase of Tricoci in partnership with Greyrock Capital Group and NBH Bank.
That’s all good news for owners of education-related companies. Here are just a few of the deals in the education sector over the last few years —
- The Learning Experience, was purchased by Golden Gate Capital Partners Group-backed KinderCare Education, acquired Troy, Michigan-based Rainbow Child Care Center from Quad-C Management.
- Rasmussen College, a healthcare-focused career college system with 10,000 students across 22 campuses, was acquired by Renovus Capital Partners.
- The University of St. Augustine was acquired by Toronto’s Altas Partners in a deal worth $400 million.
- Allied Business Schools, which offers online real estate certification classes, was acquired by Colibri Group and Quad-C Management.
- Chicago-based Tricoci University of Beauty Culture was acquired by Dallas’s NCK Capital.
- Texas County Technical College in Houston, Missouri, was acquired by Arizona College.
- The National Business Institute of Florida was acquired by a private investor.
If you own an early childhood center, a Title IV career college, or a corporate training program and are interested in potentially selling, contact us at 224-513-5142 for a free, confidential, no-obligation discussion about the current market and your options.
About the author: Rich Jackim, the managing partner of Jackim Woods & Co, is an experienced M&A attorney, investment banker, business broker who has sold over 100 businesses. He is also an education sector entrepreneur who founded and sold a professional training company, so he understands the industry and the sales process from both an owner and a buyer’s perspective. If you are thinking of selling your early childhood center, K-12 school, career college, or training program, he would be happy to speak with you. His direct dial number is 224-513-5142, and his email is firstname.lastname@example.org.Read More