Marketplace Update

Avoiding the Disaster

Recapping the Last Blog

In our last Blog, “Stop!!!…Don’t Get Trapped!”, we detailed what we continue to see with school owners across the U.S. who have been approached directly by Private Equity Group-owned larger operators in the industry wanting to acquire those owners’ schools. As our headline for this month’s issue clearly warns, this new scenario happening in our industry is chock full of potential disadvantages to family-owned school operators.

Disadvantages of Single Buyer Prospects

The first disadvantage is perfectly obvious… the owner receives only a single purchase offer from this single buyer prospect, with the obvious resulting question: “how does the owner determine if the purchase proposal is even relevant to the current marketplace valuation metrics if the owner has no other offers to compare since the offer restricts them from negotiating with other prospective buyers?”

In fact, what we have been seeing are owners who stepped into this “trap” only to have the prospective buyer back out because of “information” that was uncovered during their due diligence work, which incidentally can be anything the buyer decides is material in its analysis to determine if it will actually consummate the purchase… the bottom-line— potential buyers in this type arrangement can arbitrarily decide not to consummate the transaction for any reason, regardless of how many school inspection tours have been done, how much proprietary information the owner has turned over to this prospective buyer, or how many thousand dollars in attorney and accountant fees the owner has incurred in the process.

The most unfortunate circumstances we are seeing are the owners who entered into such an agreement but did not realize that the financial metrics of their existing school operations were never going to “make the cut” because the potential buyer in these scenarios does not conduct a deep enough analysis (cost and time investment) of the financial metrics until after a purchase agreement has been entered into.

Bailey Routzong recognizes that being approached by these companies can be a real temptation because it appears on the surface to be a streamlined and money-saving approach to an exit from the business without having to deal with a large number of transaction participants. But some truths just never change, and “too good to be true” is one of those.

Bailey Routzong Protects Their Clients

What is true is that Bailey Routzong has for 27 years protected its clients from these “too good to be true” scenarios by insuring that our clients enjoy a highly well-informed and level playing field versus these potential buyers…

  • Our clients are well informed about what the current market value is for their business (and related real estate)
  • Our clients are well informed about what potential buyers can pay and which of these buyers have a track record of performance
  • Our clients will know in advance of a sales agreement if their business’ financial metrics will pass the buyer’s due diligence tests
  • Our clients (and their attorneys) are well advised on what all the terms of the envisioned transaction will be, both monetary and non-monetary issues
  • Our clients are provided an accurate timeline forecast for the completion of the transaction

YES, you can avoid the “too good to be true” traps out there, and realize maximum market value for your business…BR has invested 27 years of effort to make sure that family-owned school operators have a level playing field in the process of exiting their business!

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