On the Block - how to sell your training business

Training & Development, Oct, 2001 by Anver S. Suleiman, Eva Kaplan-Leiserson

Thinking of selling your training company? Here's what you need to know first.

When people tell me that they're interested in selling their training company, I often reply that this may not be the best time.

The economy is one reason, but more often it's not the right time because people haven't prepared.

Taking three months, six months, or a year to get your company ready for sale can significantly increase your selling price. It's like selling your house: If you don't mow the lawn or paint first, you're devaluing the property.

Telling people to wait to sell their company might be controversial coming from an investment banker. But I try to put myself in the shoes of the seller and ask, What would I do if it were my company?

Questions to ask

If you're considering selling your company, the first step is to make sure you know the answers to some crucial questions. They are based on more than 50 transactions in which I represented either myself, a buyer, or a seller (usually the latter). The list isn't exhaustive-there's no end to the possibilities and opportunities-but it's a good start.

Why do you want to sell? Are you ready to retire? Can't grow the business any more on your own? Need cash? Scared of the future? Think it's an ideal time? Want to take a sabbatical? You need to understand your motivation for selling so you can map your strategy.

For example, if your business is built around you and your motivation is to stop working, selling your company right now isn't your best option. You need to examine how you can develop people and put them in leadership roles, and other ways you can make sure you're nor the focus of the company, before you put it on the marker.

Ask, Is my motivation clearly established and is my strategy aligned? You need to be honest with yourself and all other parties involved.

When did you decide you wanted to sell? If you just decided, this probably isn't the best time. First, you need to get your house in order and make decisions about what you can do over the next 12 months or so to make the company more attractive--thus, more valuable. It could be the best 12-month investment of your working life. Note: A year is a general estimate. The exact amount of time you take to prepare depends on how much in order your company already is and on market conditions.

How is the economy? Investigate how experts view the economy, short- and long-term. Ask yourself honestly how your company is doing in comparison to market indicators. For most people, all other factors being equal, 2001 isn't the time to sell. Multiples (factors of revenue or profit) are lower; psychology is negative. Taking your eye off the ball (your business) at this time isn't a great idea.

However, you need to consider all information and make your own decision about what you think the economy will do. If you believe the market will turn around and you have time to wait, wait. If you believe it will continue to fall and not recover for years, I'd say now is a good time to sell. If you believe business will get worse and you have a buyer who thinks it will get better, then it's a good time to sell to that buyer. What you believe the economy will do should dictate your actions.

How is your company doing? What's your growth rate? How's your booked business? Will your company be attractive to buyers right now? If you're not sure, consider waiting and trying to boost the perceived value of your business. If your company is doing fabulously and you've prepared it for sale, expect to receive lower multiples, or consider a short wait until the economy rebounds.

How is the stock market doing? Who knows what market performance will be by the time you read this, but the horrendous decline since spring 2000 has taken its toll on valuations.

How is the training industry perceived? Because of the information explosion, there are more training companies than ever. (I define a training company as any business that supplies information or knowledge to enable people to grow.) Right now, people see a lot of potential in the training industry, especially in e-learning. There's a lot of excitement, but there's also a high degree of risk. Many dot.coms have failed, and most e-learning companies haven't found a strong and replicable business model.

Will people still want to invest in training? I can't say for sure, but I feel very positive about the industry. I think new business models will be created and the industry will continue to generate excitement.

How are training stocks doing? Several, Learning Tree and Apollo for instance, have done well while much of the market fell. But Provant, the first training company developed by a professional consolidator and viewed as a model for the industry, hasn't excelled. It bought up small enterprises and made them into larger ones, creating synergies in operations, selling, and so forth, but share price has suffered. Yet, Provant is still one to watch.

A lot of e-learning companies will be losing the battle for market share. As people look for consistency and compatibility among providers, there'll be only a few big winners. They'll likely be the ones with the flexibility, resources, and staying power to weather the sort-out process.