In Focus: 'Selling an educational business can be so emotive'
Expert Alex Stanford-Tuck explores what to consider to ensure the successful sale of an educational business
Your cherished business. Your life’s work.
Both phrases might apply to those involved in independent education. And this is why the process of selling an educational business can be so emotive —whether it be a proprietor seeking retirement or chair of governors looking for salvation. These are two of the main reasons why sales might occur.
With proprietorial schools, other reasons may exist such as simplifying one’s life by selling off part of a group of nurseries or schools. Or perhaps a son or daughter has taken on a school from ageing parent owners, without the knowledge, skills or dedication to do so.
With charitable trust schools the reasons are even more clear. A school which may have thrived for centuries could have lost its market position for any number of reasons. Competition, poor marketing/social media strategy, poor inspection reports, poor results, lack of investment……..all reasons which might point to poor governance. But, in support of those beleaguered bursars or chair of governors out there, it may not always be this by any means.
"The independent school market has changed irrevocably over the last 20 years."
If charitable trust schools continue to be successful, as many are, there is no need for them to explore a sale route. Indeed, for those which are successful and run well, there exists substantial opportunity in the market for them to expand their approach through subsuming other charitable trust schools doing less well and needing help. This can be done at relatively good value also.
Through charity to charity mergers, substantial asset holdings can be transferred at a fraction of, or without, cost. This would not be possible with a charity to private group sale due to charities’ obligations when disposing of assets [Charities Act 2011, Section 119]. Of course, there may be other factors like existing debt which needs factoring in; but there will be opportunities if successful charitable trust schools were to seek them out.
The independent school market has changed irrevocably over the last 20 years. Increased bureaucracy beyond comprehension, the steady upward march of school fees, lack of available disposal income amongst traditionally what might have been “independent school parents” have all added to the squeeze and difficulty experienced recently. Consolidation in the market by private equity- backed groups or groups where the quality of education is at the heart of their existence but with substantial backing by private sources, are faring better.
"Schools must be run like fine-tuned businesses to stay viable."
With size and numbers comes economies of scale. Also, for some of the reasons above, schools must now be run like fine-tuned businesses to remain viable and relevant. This may seem obvious, but there is good reason why school failure has not been experienced (yet!) by some of the new groups which have emerged in the last five to ten years and why we continue to see school failures in both the proprietorial and charitable trust markets.
The media has highlighted the plight of many independent schools recently which may give a gloomy picture of the sector as a whole. “Gloomy” though is simply not the case. At the School Transfer Company, where I am director, we are in touch with a good number of independent schools who have seen and continue to see soaring success, despite events of 2020.
They are businesses which are run with such skill and precision, down to the smallest and most seemingly insignificant detail which make them truly alive and inspiring places to be. These places do not have a problem attracting or retaining pupils or the very best staff and the results we have seen within these schools, both academically and financially are remarkable.
The ways of going about disposing of an educational business will differ between a proprietorial and charitable trust school and solicitors and valuers may be needed to assist.
"An understanding of whether a particular buyer is right for a particular school is paramount"
When the decision has been made to sell, you will need rounded advice which encompasses many aspects of the sale. Not only will the business need considering and a review of its financial and other aspects required to understand it, working with your accountants or business manager. Property is also a key factor. Do leases need reviewing or re gearing? Does the school have surplus property which could be considered for sale separately? Does the value of the property far outstrip the financial performance of the business and might this always be the case, whatever the success of the business within?
Along with a thorough understanding of business and property matters, absolutely key is an understanding of the market. Any person with a rudimentary knowledge of the market can assemble a list of buyers; but do they know who is in the market to buy at that very time? Is the school in their target area of search or does it have the correct attributes? An understanding of whether a particular buyer is right for a particular school is paramount.
In recent years parties such as solicitors, accountants and corporate finance houses have jumped into the market to sell schools. Along with astronomical fees accumulated pre sale on a clock, we have seen, unfortunately, time and again where a rose tinted market view and less than sound market advice has been metered out.
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