How many calls, emails, and letters have you received this week from people interested in buying your child care business? If you are like most child care business owners, particularly a large child care business owner, you have probably been contacted by at least a dozen or more people this week alone.
Having specialized in child care business brokerage since 1995, I remember when there were only a handful of national and regional child care chains. And the private equity groups had little interest in child care until about a decade ago. Very few business brokers specialized in listing and selling child care businesses back then.
Those days are no more, and the child care industry – the “early education industry” has become a favorite investment area for individuals and small and large private equity groups. Much money is chasing good child care businesses and associated real estate assets. Why?
The national and regional chains must see growth each year. This growth comes from three main areas – building new child care centers, buying existing centers, and improving their own child care businesses. The hundreds (yes, hundreds) of private equity groups interested in the child care industry have a similar goal – “roll up” enough child care businesses to create a large platform (50 to 100 or more) child care businesses with the end game of selling out to a larger private equity group, or one of the large national child care chain operators – often making millions of dollars profit between what they paid for the centers and what they sold the package of centers for.
So, why are they calling you directly? Let me share with you the primary reasons.
First, they want to work directly with you because they can influence the purchase price, terms, transition period, language in the contract, and many other transaction variables. Much effort is often involved in convincing the child care owner not to seek assistance or advice from a CPA, attorney, business appraiser, real estate appraiser, or business broker. The greater influence the buyer can have over you, the better the outcome for them. Just remember, people with your best interest in mind will never advise you NOT to seek the advice of professionals.
Second, they hope to prevent you from working with a child care business broker to take your child care business to market and expose it to other buyers – their buyer competitors. If they can convince you to only work with them, they know they have a better chance of buying your child care business for less money and prevent their competition – other child care buyers from having the opportunity to outbid them. Exposing your child care business to the highest number of qualified buyers (confidentially, of course) is the ONLY way to ensure you will receive the highest price and best terms for your child care business.
Given that business brokers like myself specialize in the child care industry and other brokers that sell all kinds of businesses, including child care, why don’t the buyers work through brokers to find and purchase child care businesses? Some do. Most repeat buyers hope to develop good relationships with business brokers specializing in child care to have ongoing access to new child care businesses for sale. They understand that in most instances, the business broker represents the child care owner and, therefore, must work on behalf of their client to arrange the best deal possible with the best child care business buyers. Good child care business buyers understand the important role an experienced child care business broker plays. They do not try to bypass the child care owner and business broker relationship by contacting the child care owner directly.
And then there are the child care buyers who do not have the best intentions. Experienced child care business brokers like me can often size up the buyers and caution the child care owner about exposing their business to buyers looking for a steal or deal terms that result in the owner often not receiving the total value or agreed upon price for their child care business and real estate. So, when these buyers do not see the deal flow they would like from child care business brokers, they resort to contacting the child care owners directly. Some of these buyers have a full “telemarketing team” dedicated to directly calling child care business owners, asking them, “Are you interested in selling your child care business?”
Another reason there is an increase in buyers contacting child care owners directly – it works. Unfortunately, many child care owners fall for fake compliments, i.e., “We have been familiar with your excellent child care program for years”; “Adding your outstanding child care center to our brand would be a highly valued acquisition for our company”; “We rarely have the opportunity to acquire a child care business as good as yours”; I could share dozens more “fake compliments” child care owners have shared with me over the years that they have received from buyers writing and calling directly.
Contacting child care owners directly works because some think they have the knowledge and skills to sell their child care businesses. They think, “Why do I need to seek the advice of a child care business broker or pay money to a CPA or attorney – the buyers are calling me; selling a child care business cannot be that hard – I’ve got this.” It is not until after the transaction falls apart (and their business is often damaged, and they must work for months or years to rebuild) that they learn how complex the process of selling a child care business can be. Or, after they are contractually obligated to sell or the transaction has closed, they learn how much money they left on the table or how badly the deal was structured in the buyers’ favor – and they may never receive the total price of their business if a poorly written promissory note or earnout agreement was part of the transaction.
I have always found it interesting and sad how some child care owners spend years and lots of money building their child care business. Given the amount of money, time, and effort they expend to build a great child care business, you would think they would put more effort into developing an exit strategy and working with professional advisors to maximize the value they receive for their child care business.
In the future, I hope more child care owners see the value exit planning provides when preparing for the day they will exit their child care business. When child care business owners have an exit plan, they are less likely to entertain direct approaches from buyers “out of the blue” because they have a plan. And they have a team of professional, knowledgeable advisors (child care business broker, CPA, M&A attorney) looking out for their best interests.
As you field the endless number of phone calls, emails, and letters from buyers contacting you about buying your child care business, remember that you only get one chance to do it right when it comes to selling your child care business. Please spend some time and money (time and money well spent) working with professional advisors (CPA, attorney, real estate appraiser, business appraiser, and a child care business broker); each focused on your best interests when it comes to selling your child care business – you’ll be glad you did.
I recall many child care owners who regretted working directly with the buyer when selling their child care business. However, I can only recall two or three child care business owners over the last 27 years that shared regrets about working with professionals to sell their child care business. Their regret was not about working with professional advisers – they just regretted not choosing more knowledgeable advisers and those specializing in the child care industry.
I specialize in the child care industry and have worked with hundreds of child care business owners over the last 27 years. If I may assist you in your exit strategy planning and desire to sell your child care business and associated real estate, please call me at 336-617-3181. All conversations are confidential.
