How many calls, emails, and letters have you received this week from people saying they are interested in buying your child care business? If you are like most child care business owners, particularly an owner of a large child care business, 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. The number of business brokers engaged in listing and selling child care businesses was very few as well.
Those days are no more, and the child care industry – “early education industry” has become a favorite investment area for individuals and small and large private equity groups. There are lots of money 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 the child care businesses they own. 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 child care chain operators.
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 a business broker. Just remember, people that have 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 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 and prevent their competition 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. My list of 400 to 500 child care business buyers includes individual buyers, private equity groups, regional and national child care chain operators, religious groups, and not-for-profit organizations. Most repeat buyers hope to develop good relationships, particularly with business brokers that specialize in child care so that they will have ongoing access to child care businesses for sale. They are well aware 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 that do not have the best of intentions. Experienced child care business brokers like myself 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 full value 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 contact the child care owners directly.
Another reason there is an increase in buyers contacting child care owners directly – it works. Unfortunately, many child care owners fall for the fake compliments and think they have the knowledge and skills to sell their child care business themselves. They think, “why do I need to seek the advice of a child care business broker, pay money to my 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) that they learn what a complex process selling a child care business is. 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 is structured in the buyers’ favor.
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 some 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.
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 can recall many child care owners that 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 26 years that shared regrets about working with professionals to sell their child care business. Their regret was not about working with professional advisers – just they wished they had chosen advisers that specialized in the child care industry.