Where ABC went wrong (Part 2)

ABC Learning believed in a strong brand. This approach exists in almost every industry and can be the key to a large company’s success. Brand recognition gives consumers comfort and assurance they are getting a good product/service. The only problem with this was child care is not like every other industry…

The fact is parents generally see day care as a “necessity” and in that sense viewed as they should not be made for profit. So as the company grew in exposure the popularity decreased just as quick.

ABC Learning always did their best to keep a smooth transition and minimal change to an operation. At the end of the day the same staff member was likely to be taking care of your child and if there were any changes at all they were usually new equipment or a fresh coat of paint.

That was never going to be enough to shake the stigma of a big corporation. On an average acquisition you might see 10-15% of children depart at the changing of hands to ABC Learning. What that does on the bottom line is change the profit tremendously and that 5 times multiple has quickly become an 8 or even 10 times!

Furthermore parents expect similar prices to other ABC centres and that is just not possible when you have so many different rents in place. A perfect example of this was when I acquired a centre in a suburb called Glen Huntly at a 5 times EBITDA (they weren’t all this pricey!). The business was very profitable and the owners were charging VERY high fees to the parents. As soon as the business was closed/settled and ABC Learning was running the business, all the parents got together and demanded the fees be brought down to an equivalent ABC Learning centre 8 km away! Fortunately for the parents ABC Learning caved in to the pressure and that 5 times earning became the most expensive purchase I ever did.