The answer is Yes, as long as your company “makes sense” for the prospective buyer(s). The closing sales price can be as much as 60% higher for a small chain of centers or schools when compared to the sales price for selling a one or two center company. This math is not the lottery version of selling centers and schools. This is a very normal, realistic practice. For clarity, we are not talking about related real estate. We are talking about the business component only. Going forward, we’ll also use the words “center” and “school” interchangeably.
Here are some of the factors that determine whether a selling company “makes sense” to a potential buyer(s):
1. Buying multiple centers from one selling company: This scenario is the favorite for buyers. This enables the buyer to review the financials for only one company and acquire multiple locations. For example, when a buyer buys a chain of five centers then they complete due diligence for only one acquisition. If they purchase five centers one center at a time, then it is approximately five times more work for the same results. The buyer also suffers higher costs as attorneys, CPAs, real estate appraisers, Phase 1 inspectors…etc. have to be paid for each transaction. While the cost ratio isn’t a perfect five to one, transactional costs are definitely less for a buyer that purchases a well-organized chain than a buyer that buys five single center companies.
2. Buying multiple centers simultaneously from multiple selling companies: This scenario is the second favorite for most buyers. It requires more effort and cost on the part of the buyer, but it still allows the buyer to save time and money. Extending from the example in #1, buyers would rather buy five centers from two selling companies than from five selling companies for the same reasons discussed in #1. However, this dynamic can cause transaction closings to be delayed significantly. Sales that are supposed to close 90 days after the LOI (Letter of Intent) is signed can stretch to a year or more if the transaction isn’t properly managed. We’ve heard the horror stories over the last 20 years, and the only thing that’s worse than a transaction that takes a year to close is a transaction that takes a year and doesn’t close. Generally speaking, anything that causes your transaction to stretch-out (including waiting for due diligence on another seller’s company) is usually not good for you. Conversely, many transactions are completed this way, and this scenario or structure can be better for everyone involved. The BFS team has completed many “roll-ups” over the years. The key for the selling company is to be able to see as much of the proverbial playing field as possible. The key for buyers is to have a well-organized, focused acquisition team and dependable financing. Note: Many buyers say they can close quickly for all cash particularly when multiple centers are available. There is every reason to believe that buyers do want to close quickly and that they will pay you all cash at closing, but desire or passion without focus and ability usually leads to frustration. It is very important to know your circumstance.
Make sure you check out part 2 of this blog post. This is part two of a two part blog post. CLICK HERE to read Part 2.
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