IACDP DOMAIN THEMES

CHILD ACTIVITY CENTERS - industry global GPS

Where our CAC industry is headed and how YOU can navigate the waters!

Premise: Private Equity Groups (PEGs) have entered our Child Activity Centers industry ocean, and are making significant waves. This trend will continue for the foreseeable future (2-3 years). The child care and swimming industries have large and active PEGs. The gymnastics, cheerleading, ninja, and performing arts industries are next up. This is a very active marketplace with many competing PEGs in the United States, and is also underway in many other countries.

Question: Why are the Private Equity Groups (PEGs) interested NOW? To answer that question, we need a bit of perspective – read on!

Perspective: Historical factors for CAC owners:

• Mission: (Hobby or Passion) Our purposes have been to positively impact the wholistic development of children, to provide great jobs, to enhance the family units, and to be actively involved in our local and global communities.

• Model: (Vocation) Our dual model of (a) developmental instructional classes and (b) recurring revenues (monthly or session-based automatic renewals or re-enrollments) is a classic model for business success.

• Money: (Profession) In the past, the original goal for CAC business owners was to be able to make enough money to be able to provide for our own families. This expanded to the desire to create management positions that also supported their families. Finally, we wanted to grow the business to create a viable exit strategy at some point of our choosing.

• Multiply: (Investor) Many owners opened second and third locations in their local areas. Others have actively opened and/or acquired a chain of 6 -12 or more locations. Some owners explored the potentials of franchising or licensing operations to others.

Observation: It is interesting that for PEGs, the viewpoint is almost completely reversed!

Perspective: Historical factors for Private Equity Groups (PEGs):

• Multiply: PEGs have the need for GROWTH. They are competing with each other in many markets. They may also have the objective to grow enough to then either sell to a much larger PEG or take the company public.

• Money: The #1 priority of the PEGs is, obviously, to generate a profit for the investors. The reason that the PEGS were attracted to the child care industry was the universal NEED for child care AND the economies of scale of running dozens or hundreds of operations from a centralized organization.

In the case of the swimming lessons industry, the Net Profits were high enough to be "investment quality" long ago.

• Model: In this area, the factors are nearly identical. Our dual model of (a) developmental instructional classes and (b) recurring revenues (monthly or session-based automatic renewals or reenrollments) is a classic model for business success. PEGs l ove this model for profit-generation.

• Mission: PEGs can certainly buy into the purposes of positively impacting the wholistic development of children, providing great jobs, enhancing the family units, and being actively involved in our local and global communities.

What can YOU do for future growth positioning?

The main questions that 3rd Level Consulting gets from independent CAC owners are: (a) "what does the future look like in terms of all phases of operations, and (b)"will we be able to compete with the PEGs?".

Answers: (a) CAC owners must continuously strive to improve all phases of operations, starting with their human resources (staffing) systems, education, marketing, technology, financial results, facilities and risk management. It is no easy task, and this is WHY it is imperative to have your business teams aligned both horizontally and vertically (business process design). (b) YES – individual owners CAN compete with the PEGs if step (a) above is the guide!

The main questions that 3rd Level C onsulting gets from the PEGs are (a) what does the future look like in terms of all phases of operations, and (b)"how can we show the CAC owners that they now have viable exit strategies?"

Answers: (a) the answer for the PEGs is nearly identical to the answer for the CAC owners – with the additional imperative of coordinating their talent system-wide. (b) the answer is through both past transactions and proven business broker intermediaries like 3rd Level Consulting. The key is to develop TRUST on both sides of the transaction, which requires specific industry valuation techniques and advanced negotiating skills so that both parties feel that the deal process and structure was fair.

Where do we ALL go from here? Step 1 is staying informed!

www.3rdLevelConsulting.com and www.IACDP.org can help you navigate a course to current and future success, Contact us for a confidential, free, no-obligation discussion of your specific business and personal situation and objectives.

Author: Frank Sahlein

CEO – www.3rdLevelConsulting.com www.3rdLevelSportBiz.com

Executive Director – www.IACDP.org