In every economic cycle and in every industry, there are always people who believe that they can predict the future. Usually it is because they have experience with a business model that’s been right at least once. This authority will point to their example of being right without discussing how many times they have been wrong, and they will explain that you’re safe if you trust them. From investment banking to preschools, it has been my experience that very few people have this gift. Most business models built to predict the future are flawed somewhere, usually in the assumptions made about the very foundation of the model.
You know what isn’t flawed… the present. In the present, the following is occurring in the early education vertical:
1. Currently, buyers are paying the highest prices for childcare companies, preschools, Montessori schools and private elementary schools since 2006-2007.
2. In negotiations, buyers are giving up substantial extras that have not been given since before 1995.
3. Sellers are retiring with bigger paydays than they thought possible.
4. Banks and other lenders are lending money at break-neck speed again.
Here’s why it’s occurring.
1. Fewer centers and schools are available. During the “great” recession banks were taking centers and schools just like houses. Our industry was “thinned”.
2. Material cash flow is difficult for buyers to find. Many early education companies that survived have returned to smaller profits. While many of us fondly remember the time before the latest crash, it is simply unlikely to impossible for some centers and schools to return to pre-recession profits. For these schools, the area economic conditions left in the wake of the recession simply cannot be fixed in the near term… maybe not for a generation or two.
3. Investors from private individuals to equity funds invest in early education companies, and they want to see a growing return on their investment. The fastest way to grow early education companies (whether they own five schools or 500) is by the acquisition of other centers and schools… and generally speaking, investors are not patient when waiting for a return on their investment.
4. Many owners of early education companies have been holding back and choosing not to sell because… A. We fear that we won’t have enough money to retire comfortably, and/or B. We’re paralyzed by the thought of another painful recession.
The seller with profits has the new golden ticket in today’s environment. No one can tell you when the time is right for you to sell (or not sell) your early education company. But as time and experience has taught many of us, opportunities aren’t as plentiful as they once were.