Selling a Day Nursery
Updated: Feb 1, 2020
This case study relates to a first time Owner of a business, where he and his investors realised they did not have the experience to operate the business at a profit. They started considering selling 6 months after the purchase. They had lots of staff issues and wanted an exit strategy to ensure they were able to sell the business and make back their initial investment, despite the fact that the business was by now making substantial losses.
We were able to deliver to the client and produce an excellent sale price. Our sales process proved very effective at producing a Buyer that could see the potential of the location and the business as he was an experienced Operator. Then our negotiating expertise was used to carefully navigate the deal to completion. Our associated team, including solicitors were there every step of the way for the client.
About the Client
Our client, Little Paradise Day Nursery Ltd purchased a leasehold nursery in Richmond in August 2016. We dealt with the Managing Director throughout, who ran the business at arms length. They took over the business in a very poor state after it had produced a turnover of £180,000 for the previous year. However, the price paid for the business was much higher than market price. The business then underwent many personnel and operational changes. When the client first came to see us in February 2017, the turnover for the previous 6 months had plummeted to only £50,000. It had a capacity of over 50 and had less than 20% occupancy rate. The location was very good, being on a busy road in Richmond.
At this stage, as the Owners wished to recoup their substantial investment, many changes needed to be implemented. We advised on this and helped to put together a strategy to improve turnover and occupancy levels. Finally, they came to see us again in May of 2017 after making changes and steadily improving the turnover. At this stage the business was still making losses, which were now forcing a sale and the sales process was started by us on 5th June 2017.
The business itself was based in Richmond and also covered Mortlake. It was established in 2015 and was registered for 51 children with only a 20% occupancy level, which was steadily rising month by month. The business was operated by 10 staff which includes 3 sub-contractors and there was a manager in place. The turnover was expected to return to £150,000 for that year, but was still expecting to make no profits. It was placed on the market at £235,000.
The Owners wanted to recoup their substantial investment, and ensure that the business was sold without the staff or parents being aware that it was on the market. They were first time Buyers and realised they were incapable of making the business profitable. The losses were continuing to accumulate so a very speedy sale was necessary. If they did not sell it, they would almost certainly have to close the business down. The previous Owner, who had started the business in 2015 had overstated the profits and therefore it was purchased at an inflated value. This along with inexperience had produced a very difficult situation.
The Client contacted various agents during February 2017, but felt the advice offered at the time in terms of formulating an effective exit strategy and not placing it on the market straight away made sense. He also wanted a personal service as opposed to the type of service offered by a large corporate brokerage. He was abroad on business a lot but was able to contact us at all times during weekends and evenings even through WhatsApp. He worked with our consultant Zach Dogar having full faith in him and his 20 years’ experience as a Business Broker. Confidentiality was very important so that staff were not aware of the pending sale, as this would have led the business to become more vulnerable.
Cost was also a factor in engaging us as other agents charge upfront fees and were overvaluing the business. We charge only when the business is sold and our fees include solicitor’s costs. We therefore value realistically and are motivated to get a result for our clients. Our client was also impressed at our record of selling around 80% of businesses we take to market.
After the Owner implemented our suggestions in February 2017, we were instructed on the 31st May 2017. We started marketing the business on 5th June 2017 at £235,000, after agreeing a carefully worded marketing advertising campaign , so that the business was not further harmed. We used four main avenues for attracting the right Buyer:
We sent details to our own database of Buyers
We executed a marketing campaign to contact other day nursery operators which we felt might be interested in the opportunity. This was of course undertaken whilst protecting the identity of the business.
We also have access to the largest databases of Business buyers, numbering over 650,000.
Soon after starting the marketing, the Investor that eventually purchased the business contacted us to register his interest. He had in the past been interested in another day nursery we had sold in Brighton, so was familiar with us. He is a very experienced Investor and made huge attempts to re-negotiate the price right up to completion. After registering his interest and his offer of £200,000, the Client instructed us to continue finding an alternative Buyer, as the offer was subject to planning permission being granted for the premises. Whilst negotiations were still pending with the eventual Buyer, we managed to produce around 120 interested parties, varying from First Time Buyers, to Investors and industry operators. Our careful vetting process ensured that any unsuitable Buyers were filtered out and Non-Disclosure Agreements were signed before any information was divulged about the business, including location. The NDA ensured that staff were protected as well as client base, and the confidentiality of the sale was protected right up until completion.
The planning permission was granted on 8th September 2017, and we then guided our client through a very long due diligence process. Fortunately, as part of our procedure, we sent all due diligence enquiries to our client at the time of instruction, so that we were prepared for this stage and were not expecting any surprises. Unfortunately, the process was complicated by delays in the preparation of the lease by the Landlord, and the rent falling into arrears as Our client was unable to sustain the business. The matter eventually proceeded to exchange of contracts on 15th December 2017 and completed on 22nd January 2018.
Throughout the whole process, there were virtually daily conversations with the client, by telephone, and WhatsApp due to the volume of interest. The client was happy to engage and answer all enquiries despite being abroad.
The business was sold for a very satisfactory price and the deal was completed within an acceptable time for the Client. He was happy with the result, and the team that he worked with including Zach Dogar, Wanda Marginean, and solicitor Yew See Bailey. He would certainly recommend us for anyone wanting to sell their business.