This is part two of a two part blog post. CLICK HERE to read Part 1.
3. Timing a transaction. In today’s market, timing can be absolutely crucial. Here are a few timing factors that can influence the results of your transaction:
a. Is the buyer changing financing sources? Whether the buyer utilizes funds from a bank, investment bank, private equity fund, a REIT or a rich uncle, whenever the source of funds changes in the middle of a transaction you face the risk that the new source of funds won’t like the buyer’s transaction with you in spite of the fact that the old source approved the transaction.
b. If the buy is a smaller company, have they made any recent acquisitions or divestitures? Are they working through the changes related to a recent purchase? Have they sold anything that improved their cash position or reduced their outstanding debt?
c. Do they already have other centers in your area? Are they simply enlarging their local market share or are they trying to establish a new market? The tenacity for and the value of a transaction comes from the motivational source.
d. Are your competitors trying to sell to the same buyer?
e. How many acquisitions is the buyer attempting at the same time as your transaction?
f. Is the buyer trying to close the transaction by the end of their company’s fiscal year so they can utilize the tax advantages?
4. Size of your company. All buyers do not work from the same set of acquisition parameters, and each will likely have parameters other than the size of your company (profitability, regional location, their infrastructure, their regional management resources, your management team…etc.) that will affect their level of interest in your company. However, with all else equal, the market value of childcare companies and school chains (business components—not real estate) will typically show material increases when a company has at least one of the following characteristics:
a. More than $3,000,000 in annual revenues.
b. More than $5,000,000 in annual revenues.
c. More than $10,000,000 in annual revenues.
d. Three or more centers with healthy enrollment and a combined Licensed Capacity of 450 or more in a single market.
e. Five or more centers with healthy enrollment and a combined Licensed Capacity of 500 or more in a single market.
So, above some minimum targets, selling multiple centers will normally get you a materially higher return on investment, but it is important to recognize and manage the right factors at the right time.
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