Today we take a specialised look into merger and acquisition activities within Australia’s booming childcare services sector with industry expert Liam Hennessy. Together we’ll explore opportunities for buyers and sellers in this niche area, and also look at the benefit to brokers (and businesses in general) of niching!
- What makes the childcare sector different
- Adding value to businesses in this industry
- Key considerations for childcare development sites
- Finding buyers within this space
- What buyers should focus on when buying childcare centres
- Trends in the childcare industry
- When is a good time to think about exit
- Multiples for childcare businesses
- Dealing with the sale of struggling childcare centres
- Issues in dealmaking within the childcare sector
- Other areas to add value before sale
- The benefits of niching as a broker
Joanna: Hi, it’s Joanna Oakey here and welcome back to the Deal Room podcast, a podcast brought to you by our commercial legal practice — Aspect Legal.
Today we take a close look into dealmaking activities within Australia’s booming childcare services sector with industry expert Liam Hennessy of the boutique M&A and broking firm, ABBA group. Together, Liam and I will talk all about the trends, drivers, strategies and opportunities for buyers and sellers in this niche area. And we also touch on the subject of the benefits of niching!
So keep listening, and we’ll get started!
Joanna: So Liam, thanks for coming on board to chat with us today.
Liam: Thank you for having me.
Joanna: My absolute pleasure. So look Liam I hear that you specialise in the complete childcare vertical of childcare developments from pre-DA, DA-approved to business sales and tenanted freehold investments. Basically, I’m hearing here everything childcare sector related in the M&A area.
Liam: Yes, correct.
Joanna: That’s you?
Liam: That’s it.
What makes the childcare sector different
Joanna: Okay, good. All right, and in today’s discussion I guess we’re going to drill into this sector to provide a little bit of specialised overview of particular industry sector, which we do from time to time.
So let’s start out with what your thoughts are about how the childcare sector is perhaps different to other industries when we’re looking at M&A activity.
Liam: Yes sure, absolutely. The key difference that I find is throughout the whole realm of the industry, from buyers to the sellers to corporate structures to the importance of locations, whether it’s geographically or near particular hubs of cities or train stations, schools and all those sorts of things.
It’s like a little industry within itself when it comes obviously to the development side of things and the tenanted freehold and the business. They’ve all got their own little structures and little key points to keep in mind in those sort of directions.
That’s what I like about it compared to other industries like retail hospitality space for example. A lot of that is still retail. Same as I guess childcare. You are dealing with B2C as opposed to B2B. But my experience with the retail hospitality sector, you are actually selling the business of the, you know, the owner is usually the goodwill.
With the childcare industry, I find that it’s a lot different. It’s usually run under management. Centre management are in place. People in the childcare sector like to grow and have a portfolio. Then obviously you’ve got some big players out there too that have been in the marketplace for quite some time now.
There’s a lot of entry points to get involved. A lot of exit points as well. There’s multiple ways to add value. With that said too, there’s big detractors in value as well if not done correctly.
Adding value to businesses in this industry
Joanna: That’s interesting. I’d really like to drill into that a little bit more then. Let’s talk about both of these areas. Let’s start on the positive. How can value be added to businesses in this industry?
Liam: Yes, sure.
Joanna: You’re talking about preparing them for sale. Is that what you mean in terms of value add?
Liam: Well, there is preparing for sale. But there’s also dedicated exit points along the process as well. So you could start at development side. You could have raw land, which isn’t DA approved as of yet. But it could be ideal location for a childcare centre.
I sold some raw dirt in the pons, the tail end of last year. Not even subject to DA approval. It’s a pillar of a site. The group that contacted me actually, they’re residential property developers. They saw some that I had been doing. They heard some good things so they gave me a call. I went and met with them and they showed me the portion of land where it was situated. Within the first couple of minutes I was like, “Here we go. Here we go.” This is the site of all sites.
Key considerations for childcare development sites
Joanna: And can I ask, what was it about the land that were the pointers for you. What made you get so excited?
Liam: Yes. There are so many. But look, to put it bluntly, there’s key things that everyone looks for straight away.
It’s corner blocks, nice square blocks, whether it’s large enough to facilitate an underground car park which can obviously maximise the amount of places that they can have. But also the ability as well to not having the need to have an underground car park either based on, at that time Council requirements, but now it’s very different. And the fact that it was opposite the school, literally opposite a school.
There was a main road. There was another main thoroughfare main road, two key junction points together. Obviously, the pons being a very nice and trending developing area for the affluent professionals and young families and the demographics we’re all ticking the boxes.
There was very minimal centres in the area and those minimal centres in fact had full occupancy as well. So it shows that there is demand. It was just ticking all the boxes.
I have my own parameters on a spreadsheet that I put together. So I asked for the land size, the different frontages and I can put together within a few minutes how many places you can fit on there, whether that’s through underground car parks or just on one story.
Through that, that also gives you how many staff you need, how many car parks you need and your unencumbered and encumbered indoor and outdoor areas, the different age group splits, something that I’ve put together and really spend a lot of time on. So you can probably realise that I like this space.
Liam: I invested a lot of energy and time into it.
Joanna: I hear it Liam and I love that. I think that makes for a lot of success, being really passionate about what you’re working in so I can hear it Liam. I like it.
Liam: The reason why I mention that because that’s the starting point and that’s that foundation that’s where it all begins.
Finding buyers within this space
Joanna: And before we move on from that, just looking at that development site concept a little bit more. Who is it that would come to you at that point? Obviously, investors, who are, these people who are already thinking childcare so they come to you.
Liam: They don’t come to me. I come to them. I go straight to them.
Joanna: Tell us how you do that.
Liam: Look, the first thing I do is build a list of prospects. To work out obviously, based on the price, I need to work out who’s going to find the most value.
The first port of call was getting involved with the big players in the market. They like to have that control from the ground level. They like to, as I say, control. They like to pick the location. They like to do their own designs. They like to do their own facades. They like to streamline and ensure that the way that their floor plans work, continuity through all their different brands for efficiency purposes. But also just from a branding front as well. So that was the point. I went straight to the top.
The group that was able to purchase the land, develop the land and operate the centre. And that’s what I did. I made about five phone calls and had an offer within a couple of days. So completely off market.
Joanna: Wow. So you found the land first. So you went looking for the land, and then you matched the, you then sort of sold the land plus idea/concept to your target.
Liam: Well, the land owner came to me. I let them know very quickly how valuable that land is for a proposition of a childcare. When I say valuable, I don’t exactly mean on a monetary term. I mean, yes this has legs. This is worth pursuing.
I asked them to give me a couple of days and I get back to them with a full feasibility. Feasibility came through positively and I went out as soon as I was confident with it, and obviously the vendor was confident on the likelihood of actually selling it as a childcare, remembering that they’re on the residential development side with subdivisions and things like that. They were putting out there.
The groups that I’ve engaged were very excited. They wanted to put offers down subject DA. But this particular group put down an offer which was the same monetary amount as the others, but not subject to DA approval.
Joanna: Wow! Okay. Amazing.
Liam: So there’s confidence on their side that they can get it done.
Joanna:: It’s interesting that you’re talking about this whole range of considerations that you have in relation to an actual block and location before making the decision about whether or not it is the ideal piece of land to then convert into a childcare centre.
What buyers should focus on when buying childcare centres
Joanna: How much do you think buyers focus on this when they’re looking to buy a currently running business? And should they be thinking about this more?
Because as you’re talking about this, I’m thinking of a few client that we’ve worked with in this area. And I’m not sure that they have gone through the process as deeply as I can hear you talking about it in terms of assessing the site in and of itself.
Usually, they’ll assess the business. But I’m not sure whether or not there’s a really detailed consideration of the site. What’s your thoughts?
Liam: That first portion on a foundation level carries right through to a business sale when it is operating. Everyone talks about multiples on EBIDA and things like that. It is in fact those I guess intangible fronts that aren’t on the P&L’s and your balance sheets and your occupancy reports and things like that that maximise that multiple on EBIDA.
Due to obviously myself wanting to utilise my time best, having that knowledge at the start, I can really start to pinpoint what’s a good location and evaluate where I’m going to spend my time and energy.
People that I’m speaking to, they value that. They value that I’m giving them good sites. They call me and say what have we got. And I’d take the time to, if I have something that’s not suitable for them. Okay, please let me know why this isn’t suitable and what it is you’re looking for. Then I’m building a case. I’m building a case. This is what I’m seeing now. This is what they want to see. I’m going to spend my energy finding that and I can potentially sell it before it’s even listed.
Joanna: And so does that help you find opportunity for buyers then? Does that help you find sites, for example that you say, well this is a great site that perhaps the business isn’t performing great, so therefore there’s probably a lot of room for value add for a buyer coming in because it sounds like it’s business issues, management issues rather than potential?
Liam: Absolutely. And there’s many things that can detract value in an operating business. A lot of it comes down to staffing management.
Anywhere between 40 to 60 percent of business income is an expense dedicated to staffing. Forty to sixty percent, that’s a big variant as you can understand. So as you can see just how important it is to get those ratios right.
When I start looking at those P&L’s, the first thing I look at is what’s their percentage of turnover for staff, what’s there percentage of turnover for rent. And then you start to work out “Okay. This is where things have gone wrong straight away.” There’s your potential. There’s your tangible potential to add value. Once you purchase, increase your ROI.
And the reason why I enjoy the space as well is the buyers and sellers or anyone in this space they are astute business people. They have time for you if you can bring value and you learn a lot through that. They learn a lot through you as well. So if I can’t bring value to somebody, I’m not doing my job right. So I’m focused on ensuring that everything that I can advise is of value. So that’s where that lies.
Joanna: And so it sounds like you have quite a broad, you know, you deal with childcare centres in a large breath have they lost cycle obviously. You deal from the development side through to selling a fully functioning and running business.
Joanna: From my perspective that’s a bit different from talking to brokers. Most brokers deal generally just at that particular point of sale. It’s interesting that you’ve got this exposure to different parts of the life cycle. So, where does it end?
Like as in, do you also then work with the business owners and the centres in transition and in value adding after a sale as well or do you sort of cut out at that point?
Liam: It all comes down to the relationship on that particular front of assisting them after the purchase process to continue their value. It kind of, on a broking front and a sales agent front, it kind of does end at that transaction level once it’s sold. But I’ve got some great relationships and especially with this group that just purchased the two sites on Tuesday.
They’re looking for another three acquisitions before the end of the financial year and another five by the end of the year also. So I sat down with them at the tail end of last year, giving them my advice as to where I see the market and how the best way that they can get in, and obviously set a real nice strong foundation for their enterprise moving forward.
The first thing was we’re talking about development sites. We didn’t have development sites at a particular time as untenanted freeholds as well.
But effectively, what I said was I said look the best thing to do is buy a couple of businesses. Get some positive cash flow. Learn how to best operate the centres on an efficiency level. But also, the communication of the centres with the directors and the managing directors as well, to really get a feel of how they can set I guess their ethos from the start with the actual businesses to begin with.
Once they have that positive cash flow where they’re going to move down the front of getting some development sites as well maybe some turnkey opportunities. But these particular sites that they just purchased were going to be looking at getting more in that particular location or at least five kilometers around that particular area so that they’ve got the economies of scale in line as well.
Trends in the childcare industry
Joanna: I love it. I love it. That sort of perhaps brings me to thinking about trends in industry.
I get the sense there’s a little bit of consolidation, but I just wonder whether or not we are heading in to maybe a period of consolidation much larger consolidation into the future.
What’s your feeling about the trends in industry?
Liam: What do you mean by consolidation?
Joanna: I mean by groups purchasing many centres because I see you know just anecdotally that there’s a lot of childcare centres popping up at the moment. We’ve got lots of individual operators who are moving into the space. So quite often, what I see in any industry is this wave of lots of individual operators and then a move to operators then starting to, it’s starting to be taken over by consolidation.
Liam: Okay you’re talking about big groups.
Joanna: Exactly. Yeah that’s right. And we’ve seen this in a lot of sectors. I just get the feeling that childcare is perhaps right for this to really go off.
Liam: Look, it comes and goes. I’ve seen some things in the market with some big players and I would go, “Oh why they’re doing that? Why are they doing that?”
I mean maybe they need the cash, maybe they need to do this, maybe they need to do that. And then it comes out, they’re going growth now. So they had to raise some capital and they’re growing now and this is what they their acquisition front is.
For myself, I ensure that I have relationships with those people, with those particular groups. But then I guess on the smaller mum and dad sort of operators, a smaller operating groups as well, that what I have, you know, start growing their portfolio, three five seven maybe 10 centres and things like that. The only way is going to consolidate is if they sell. So that’s how that’s going to work and it depends on how they’re operating.
They won’t sell if they’re in a position where they’re financially strong on a business level but on the actual operational level if they’re going well.
We’ve seen drops in multiples over the last couple of years. Obviously, the property market as well has been affected in some portions of the commercial property market. Obviously residential, which affects density in areas and those sorts of things as well.
So what I ended up deciding probably around October last year was okay it’s time to focus on businesses. Let’s get some business transactions happening.
A lot of those people that purchased those businesses that could be up to 10 to 15 years old. They’re ready to move on to it. Sometimes the wind is blowing out of the sails. They’re ready to move, and it’s up to me to hold those relationships with those people.
But I’ll make that my responsibility to get in now and really build a foundation of I guess a contact in advisement. And also, someone that they can download and talk to me about how they’re going, to talk about how things are going as well in different areas. Remembering as well geographically it’s almost like a different world. You can just move to a different suburb you know 10Ks across and you know you’re in a different realm of environment.
Some areas are highly dense, highly dense with childcare centres. Some aren’t. But it all comes down to the validity of it and I can do that feasibility in a couple hours. As long as I can focus on it 100 percent for a couple hours, I can get it done in a couple of hours.
And the way that I work as well is I use all. Any data in the childcare centre is good data. So even if you’re selling a business, I can look at data for land sales as well and property you know tentative freehold property sales.
And the reason why that’s important is because you can start to draw the parallels of where things are starting, where they’re exiting, what value they’ve gained from DA to construction certificate, from DA to you know the certificate of occupancy. You can really start pinpointing where things are sitting and advise on those sorts of fronts as well.
Yeah, I guess you can really start assisting people with their strategies and even perhaps even give them an insight into a strategy that they might not have even considered.
When is a good time to think about exit
Joanna: Yeah right. If we take it back and look at a business owner who has a childcare centre at the moment, say for example your mum and dad operator. What are the markers for them of when is a good time to think about exits?
Liam: Okay. Let’s steer towards the positive on maximising their value. So we’re looking at what their occupancy percentages are at. Anything above 80 is just music to my ears and any buyer’s ears as well.
You also want to have a look at their, as I mentioned before, your percentages of turnover especially staffing. With those occupancy reports as well, you can work out how many children are actually in an active session so then you can actually have a look at how many staff they’ve got rostered on.
You can start to advise, “look you know you at four casuals coming in for this particular circumstance. I think that’s not really warranted. You know, why isn’t the senior manager facilitating this particular portion of children?” Oh, that’s because the centre manager does this this this and that. Okay, no dramas. So that’s going to be a question.
I ask all the questions that any buyer is going to ask upfront. I build my case to begin with. Not only to validate whether I can sell it and whether I can sell it at the price they want, but also to ensure that when it does go on the market the days on market are minimised by preparing it effectively.
Another cursor for them to want to get out also is how many years they’ve been operating and how many years they’ve been operating above that 85, 80 to 85 percent occupancy rate. That’s important.
If they were to think about selling I go, “How is your lease sitting? What have you got on the lease? What options have you got left?” And evaluate it from there. It’s like, “Alright well you know your operations in good order. You know you got great staffing ratios. You’ve got a good lease.” These are where I make recommendations on a sell front, “What do you want? What do you want for the business?”
They always have a price in mind, whether it’s realistic or not that’s irrelevant. At the start, the first thing I do is I want to validate that price that they want.
Multiples for childcare businesses
Joanna: So tell us, that sort of business that’s running sounds like at its optimum performance level, if it’s got more than 85 percent occupancy. It’s been running there for a while. We’ve got a great lease term. What sort of multiples are we looking at for this business?
Liam: If we’re going to talk on the higher side, 5 or 5.5. The beauty of the childcare industry as well and what I really really like about it is it’s not just what’s on the P&L. When the buyers going in, they normalise the P&L for their own ROI. So you’re gonna get different offers based on all different situations.
I do whatever normalization I can. I’m not an accountant. But I’ll do whatever normalisation I can. State that this is if it was right in this scenario, this would be this would be a net profit and therefore EBIDA and therefore the multiple.
I don’t expect them to accept those particular normalisations 100 percent. It’s so that they understand just how far or how close to the market is running it at optimal. It gives them the position to, especially on the economy scale and level. If they got centres in the area, they can come up with their own offer their own EBIDA and work from there.
Joanna: Great okay. And then what’s the total range that you’ve seen between, it would be interesting just to hear like, what the lowest and the highest has been in terms of the multiples that you’ve witnessed out there?
Liam: Yeah. Well going back a few years now. There are a lot of centres being sold over the market rate. Geez, I saw some at eight nines even twelves at a particular point. Some of them I was just like “Oh, they have done well.” But don’t get me wrong. I mean that was a really good centre. Don’t get me wrong. But it’s unrealistic.
You’d be speaking to a vendor or even a buyer and they go, why is the multiple at this. I saw they’re all selling at this, which may be under. But then you speak to a vendor who was like one sold a couple of years ago it for 12 times multiple and therefore I think my business is worth that. Then your hat comes on of education.
They need to be educated. They’re not misled or anything like that. But as a business owner, you think your business is worth the highest amount possible. And I give them the facts. Let them know what the situation was. Why that may be happened. I try and dig into those sort of transactions on an intel front and then really give them an idea, “Okay, well look that was in the Northern Beaches. You’re in South Sydney,” for example. “You have different demographics. Everything is extremely different. The land isn’t worth as much. You’re not near three or four primary schools and these sorts of things. There weren’t many centres in the area.”
All that sort of stuff. It comes back to again to why I like the industry. They take all of that on board. A lot of who I communicate with it’s never “I know right, I know right, I know right.” They take on board what you say.
I give them evaluation on three sort of levels. This is probably the highest mark. This is where I think it will sell and this is probably the lowest mark.
If I can’t have some sort of reassurance that they agree with me on that front then “look sorry I’m going to have to part ways here. Good luck. Love to stay in touch with you.” Nine times out of ten, they end up coming back and say “Oh we’ve done this now. We’ve done this now. What are your thoughts? Okay. Yeah fantastic.” You know we’re gearing here.
At the same time as well, I am also keeping that particular opportunity in the back of my mind in case I do come past by a buyer, and say look this is it. They might happen to live in Seven Hills. They want to stay in Seven Hills so this business might be a little bit over. But they’re willing to pay that, because they live in Seven Hills and they know it and they know that they can do it.
Joanna: Yeah. The classic issue with living in the area. Well, and I guess it can be a positive right, you know, the area.
Liam: But I never list a business for that small portion of buyer.
Joanna: Yeah right. So firstly, just a quick question. Going to your 12 times multiple sale. Do you remember that sale? We’d just like to hear what was it that got that value for that business?
Liam: Yeah. That was about three years ago, first of all. So we’re talking a different time. It had something like 118 places. Massive! We’re looking at different price ranges so different price per places averaging between three age groups of around 130 dollars a day per place. And it was sitting consistently at a 90-95 percent occupancy for about five years.
So we’re talking record breaking stuff here. I wish I sold it.
But it was really good to see that someone was able to achieve that. Obviously, the purchaser as well, they purchased a good business. I’m not saying they’d paid over. But that was the biggest multiple on EBIDA that I came across.
Dealing with the sale of struggling childcare centres
Joanna: Interesting. On the flip side then, do you see many childcare centres coming to you who are really struggling? And what do you do with them in terms of the sale then?
Liam: Yeah. I don’t want to call that handholding. It’s definitely not the right way to explain it. It’s energy and attention to really let them understand where things have gone wrong, how it can be fixed. And if they do decide to fix them, fantastic.
But usually, the energy is gone. That’s why it’s dropped, especially in good areas and things like that. So I let them know “Okay, what do you want or what do you need?” And then I go back to the process of quantifying that.
So if we look at say the net profit, do a little, you know, tie a little add back schedule while I’m sitting in there. Do your multiple on EBIDA. I’ll go, “look sorry but we’re going to be pushing it here. We’re really really going to be pushing it here. Let me go back and I’ll do a further normalisation.”
That’s why I dig into the occupancy reports, transaction records and things like that and build a couple of scenarios. “Okay great. Now if we use this particular EBIDA or net profit scenario, we’re sitting at this mark, which is obviously over the market rate. But if it sits somewhere in the middle and someone does finalise 50 percent value in those particular normalisations, we can have this done.”
And funny you mention that, that was the sale on Tuesday. Two of them, yes.
Joanna: But you know I guess there’s some businesses out there that aren’t necessarily making profit, right? You know that happens sometimes. So where do you go? Do you have buyers for those sorts of businesses?
Liam: Yes. I mean you speak to them all the time. You’re looking for, people are looking for I don’t want to say a bargain. But they’re looking for a low cost high growth opportunity.
And definitely, you have a lot of great conversations and you learn a lot through those as well because you start to not only add to the knowledge that you have. But you’re also adding to the knowledge of what people believe as well. And sometimes, they’re a little bit misguided. Sometimes they go “Oh that’s a good point isn’t it. Okay. I’ll keep that on board.”
It comes down to getting inspection. Get them in front of the business. Even though it’s probably going to be sold on the profit loss and things like that, they still want to see that, because they still want to see okay, “How much do I need to do to turn this around? How much capital investment do I have to put down to make this work?” That’s really how it goes. But get the inspection happening. Get them in front. Get them into the business.
Issues in dealmaking within the childcare sector
Joanna: I guess drilling in to the sale of a childcare centre. What are some examples that you have seen that have caused real issues in the deal?
Liam: Okay. I’m not saying that I’m perfect but I haven’t really had any major concerns during a deal. Sometimes it really just comes down to sometimes the solicitors are going a little bit too heavy, sometimes.
Joanna: Those solicitors. I get it.
Liam: Sometimes it happens. And you know unfortunately, as frustrating as it is sometimes, sometimes they are not using the right solicitor. It might be the solicitor that they used for another transaction and it wasn’t correct.
That’s why commercial solicitors are extremely valuable that do the word commercial. They’re commercial. They understand how things work and also assist on how to get things done as well. Little things. Sometimes they’ll try things like reinvesting the deposit and little things like that. But I’ve had some horror stories in the past with other businesses.
What I ensure now is I foresee everything at the start. I’m building the due diligence schedule upon listing the business. Because what’s the point of getting an offer, getting accepted, and then due to your lack of due diligence as a broker, it falls over at the end.
There’s no value in that for me. There’s no value on the buyer and there is no value in that for the vendor. So get everything in gear. Get everything going and make it all calculated and make it all makes sense.
Joanna: I think you’re absolutely right. Nothing worse than getting through the commercial terms, and then suddenly you know. From a due diligence perspective, if we’re acting for a buyer you ask for some fairly obvious documentation and then there’s crickets. And it makes you worry about the business when that happens. Right?
Liam: Sure. The most important thing throughout the whole process, just ask the right questions. Just ask the right questions.
Other areas to add value before sale
Joanna: Maybe Liam if you can talk to us about what are some of those. Like we talked about some of the areas of value adds, so you look at utilization of staff and you know is there right utilisation of staff and can we move that a bit to pull a bit more profit out of the business as we’re priming it for sale. And obviously, occupancy rates. But I guess that’s obvious you know that’s a marketing thing in many instances. I’m sure every business is just pushing to get the highest occupancy they can.
Liam: Absolutely. But it’s easier said than done. That’s the thing. It’s easier said than done. That will push down the multiple, then it’s obviously pushing down the profit as well.
And you know just looking to have a strong occupancy rate for six months to prop up that PNL upon exit doesn’t work that way.
You’re looking for a good business remember. You’re looking through sustainable growth and sustainable profits, which is obviously the key indicators for a good purchase.
Joanna: What are the other areas of value add then before sale? Other than those, that sort of area that we talked about.
Liam: Before sale, it’s when you have that emotional connection, okay look I’m going to have to divest here, or I’m looking to divest here. Let’s keep everything running as it is. Let’s just keep things nice and smooth and working well. Let’s keep the company culture nice and vibrant.
Remembering that the parents are dropping off their absolute prized possession, their child. They want to have confidence all day that they’re being looked after completely. So you know you want to continue that standard that you have upheld during that point. And then adding value too.
Look, you can go and increase your DA. You could be licensed for X amount, but your choosing to operate at this amount. You can structure leases that are dedicated on a percentage of turnover or maximum achievable turnover.
So even if the occupancy rate goes down, and therefore your profit goes down, that the rent still stays the same. There’s little things like that.
And that’s something that I’d advise if you save you know, I broke it down then rents 20 percent of turnover. I’d be like “okay are you the landlord? Yes we are. Okay, well let’s rework it this way a little bit. Let’s get this done.”
And remembering as well that it’s not all about the money at the end. So many negotiation factors that’ll get a deal over the line and that will bring value.
There’s not really any straight A’s you can probably tell, because each buyer has their own idea of what value they need. So I try and find as much value as possible across everything. From my mom and dad purchaser, from a large group, centres in the area, and just maximise my spread and hit the targets at the top that will find the most value first and then work my way down.
The benefits of niching as a broker
Joanna: Obviously, it sounds like you’ve got quite a deep specialisation in this childcare sector. As I hear you talk, I can really hear what the benefits are for a broker making the choice to niche. It sounds like you have the opportunity to get to know a sector so much that you can then see different opportunities.
I’m talking here also about your ability to focus on this stage before the business sale, which is the development sites as well. As well as, I guess, all of the information that you’re able to offer buyers and sellers about that particular sector.
What got you in to niching in this area?
Liam: Very funny question. When I joined the group in 2016, my first phone call was with a prospective purchaser looking for childcare. That was my first phone call.
She was an incoming enquirer. The managing director sitting next to me, “All right Liam it’s time to you know put your hat on and start your new career in this space. Let’s get on the phone. Have your first conversation.”
I didn’t really know what she talking about. But I wrote the notes down. I build a little bit of rapport with her and I speak to her nearly every time I have any opportunity at all. And from there, I saw how dynamic the space was.
It was so, it was very very dynamic. I could see all these different exit points. I could see it was also very calculated too. I could also see that it’s a good space to work in because, well for me it was. Because it’s something that I can really put my energy and attention into on an education front.
Then on that education front, comes confidence. When confidence comes through, that’s when you believe what you’re saying and you believe that the value that you’re giving through a conversation and an advisement level is rubbing off. All of a sudden you start getting traction and it starts rolling in from there.
I worked previously for about five and a half years. I worked for a textile import exporter. We were the Austral-Asian agents for three Italian fabric mills, selling to the Australian market. This is premium quality fabric for high quality brands and big price points. So I was already used to dealing with clients that saw value in quality. So they’re buying a quality product. They expect quality service, and through that, so this “Hi, how are you and nice smile.”
It’s quality service on a front of, “Okay, this is what I believe is right for your business strategy or structure. These are the trends in the markets. Look this fabric might be a little bit more expensive. But you’re going to save costs on your production line if you do get to that point.”
I sort of saw it as a little business that I can work on for myself because there were so many different levels to it. I enjoyed interaction with people that saw value in quality goods. I see childcare as a quality space and through that, they need quality service and they need quality advice.
I’ve ensured that I’ve been able to deliver that and what I need to continue doing on a very high level front is add value. Just continue adding value. Everything is changing all the time, just continue adding value.
Joanna: So are you saying then that you came to niche in this space not so much because you were looking for the concept of niching, but just because you found a particular industry that had these hallmarks to you or something that you liked working on.
As you say, you saw sort of the quality business in the industry. That’s what attracted you. Rather than the idea so much of niching as a whole. Is that right?
Liam: I fell into it. I absolutely fell into it.
I had the first opportunity that I went out to within the first couple of months. There was a DA approved site. The people who developed who would sell didn’t actually own the land. They just wanted to sell the DA and you know very weird and very strange.
But because I was so keen to get into it, I did all that hard work at the start by calling every single top group within the childcare space. I started building relationships with them.
I’ve had five inspections in one day from all the all the key players. I probably should have put another half hour gap between them because they’re all running into each other. I was like “Oh! We are gonna have a battleground here.”
But from there, I started to understand the importance of the questions that they were asking. I thought would “I like to know, about this or this. This is good. This is good.” Then you start to hear little things in conversation and note that down.
Before you know it, I’ve built my own strategy as to how I do my feasibilities and who I approach and what I decide to spend my time working on.
Joanna: Second last question Liam, what advice do you have for brokers out there based on your path?
You ended up niching, whether or not you intended to. But is that a good strategy for brokers to look at? Or just generally, what recommendations do you have for people maybe starting out in the industry?
Liam: It’s a hard gig to begin with. The first thing that you really need to do is understand what keeps you motivated, understand what keeps you driven and understand how you can make money as well and how you can enjoy it on a completely autonomous position.
We’re getting new brokers on as well that are all going to be on an autonomous front also. So if you can find something to dedicate your time and energy into and be an expert in it, absolutely.
Don’t force yourself into it. But you need to show passion and drive. And that comes, that just rubs off when you already enjoy something so much.
Joanna: Excellent! And then I guess the last question Liam, how do people find you if they’re interested in buying a childcare centre, selling a childcare centre or indeed looking at setting one up from the ground up?
Get in touch whether it from the start of the development, all the way to a tenant freehold, whether you are a purchaser or a seller. I will be able to give valuable insights to ensure that you are actually spending your time effectively and finding the right space. And I’m able to do very fast feasibilities as well, which I’ve definitely spent a lot of time on to make visions as possible.
Joanna: Great! Well look, thank you so much for your time Liam. It’s been great talking about your sector and about the benefit as a whole of niching because I think that’s one element that’s also an over lying concept of the stuff you’ve been talking about today.
So thanks for coming on board and we’ll put links through in our show note to all of those links we’re talking about in case you are running along by the beach at the moment. Lucky you. And can’t note it down. Okay fabulous. Thanks Liam.
Liam: Absolutely. Thanks so much.
If you’re interested to learn more about this niche sector, you can reach out to Liam and his team at the ABBA Group by checking out our show notes at www.thedealroompodcast.com where we’ll link through to their website. There you will also find a full transcript of this podcast episode if you would like to read it in more detail.
I hope you enjoyed what you heard today. If you did, please subscribe to the Deal Room podcast on Apple Podcasts or your other favorite podcast player to get notifications straight to your phones whenever a new episode is out.
Thanks again for listening in! This has been Joanna Oakey and the Deal Room Podcast, a podcast proudly brought to you by Aspect Legal.
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