Due Diligence Decoded: The Vendor’s Secret Weapon

by Travis Latter 18th of November, 2024

Due Diligence Decoded: The Vendor’s Secret Weapon

Whilst this article specifically deals with our speciality of Registered Training Organisations (RTO) it is entirely relevant to all sectors and all industries.

In the competitive landscape of Registered Training Organisations (RTOs), sellers must adopt the mindset of buyers throughout the Due Diligence process and, in fact, through the whole sales process.

There is no greater super-power a vendor can have than putting themselves in the shoes of the buyer, in the headspace of the buyer and in the same emotional state of a buyer. The power in this is real and ultimately leads to a successful sale progression through due diligence.
Why RTO vendors must adopt the buyer’s perspective.

Now more than ever, in this highly competitive landscape of Registered Training Organisations (RTOs) for sale, the distinction between having a sale at the highest price, in the least amount of time and best terms often rests on the vendor’s ability to deeply understand and align with the sophisticated needs of buyers.

For RTO vendors aiming to navigate this complex market, adopting the buyer’s perspective is not just a beneficial strategy—it is imperative.
The number one reason a vendor MUST think like a buyer.

My vendors here this at every step – A buyer buys risk. Our combined job is to understand and lessen the risk for the purchaser.

When purchasing a RTO the buyer is not just acquiring registration, assets, client base, etc, they are also buying into the inherent risks associated with the business and company. This encompasses:

Regulatory compliance challenges
Market and funding volatility
The ongoing need for educational quality
Innovation
HR
And of course financial implications plus more…

A well-informed vendor who transparently communicates the potential risks and how they are managed will not only build trust but also potentially secure a a sale at the highest price, in the least amount of time and best terms. This transparency aligns with the principles of integrity and fair-pricing, ensuring that both parties can negotiate with a clear understanding of the business’s true condition and future potential.

Buyers of RTOs are typically sophisticated, experienced in the educational sector and are seeking more than just a profitable venture.

The role of empathy and objectivity

By removing personal biases and assumptions, vendors can identify opportunities for improvement and innovation aligning with the needs and expectations of their target.

These conversations in due diligence go a long way to build confidence and trust in the transaction.

By adopting a buy-side mindset, vendors can transcend their own subjective view of their RTO’s value and thus enabling a more objective, data-driven representation of the RTO’s worth. This not only enhances the vendor's negotiation capabilities but also ensures that the marketing and sales strategies are precisely tuned to meet the sophisticated needs of prospective buyers.

Understanding the buyer: A strategic advantage

The first step for any RTO vendor is to deeply understand who the buyers are not! – they are not customers, they are investors looking to acquire an entire operation.

Recognising the buyer’s intentions, goals and concerns is paramount. Working with your broker you must understand what drives the buyer to invest in your RTO – it is more than a superficial understanding. It involves a deep dive into the factors that influence their purchasing decisions:

What is the strategic fit:

Buyers are looking for RTOs that fit into their broader business strategies. Does your RTO offer unique programs or hold a strong market position in a growing field?

Be honest on your compliance and quality:

Given the regulatory nature of the educational sector, compliance records can make or break a deal. Showcasing a history of excellent audit outcomes is crucial.

Where are operational efficiency improvements:

Buyers are interested in how well the RTO is managed. Operational metrics, staff qualifications, and student success rates are all critical data points.

Understanding the buyer’s journey and destination will allow the vendor to strategically position their RTO for that buyer at that time.

Understanding buyer risk: Defusing the fear bomb

Imagine yourself as a potential RTO buyer. You're staring down a financial commitment that impacts yours and your family’s future. Fear is inevitable.

Will the RTO deliver the desired outcomes?
Can you manage the ongoing costs?
What if this????
What if that????

Remembering your own journey, including any pain points and displaying empathy will disarm the buyer and will build trust.

Trust isn’t just a buzzword; it’s the cornerstone of a premium RTO sale.

Sophisticated buyers demand more than words. It is less important what we tell them as it is what we SHOW them.

Price is what you pay: Value is what you get.

Price-centric conversations are a race to the bottom. Instead, by focusing on crafting a compelling value proposition, both the seller and the potential buyer can better understand the tangible and intangible benefits the RTO offers. This approach not only underscores the RTO’s distinct offerings—be it superior curriculum, robust student support, or industry connections—but also highlights how these elements
translate into real-world advantages for the buyer.

In essence, the aim is to ensure that the buyer perceives the price not just as a financial transaction, but as an investment into a package of unique values and opportunities that they will gain.

Thinking like a buyer also includes understanding the market value and not just what you think the market wants and together we will focus on crafting a value proposition that transcends the cost.

Case Study: Alpha Training Solutions - A missed connection

History

Alpha Training Solutions (not their real name) - a mid-sized RTO, had developed a strong reputation in the business sector for its bespoke training solutions. Despite their industry presence, the company faced significant challenges when attempting to sell their RTO.

Situation

The owner of Alpha Training Solutions decided it was time to retire and we planned to sell the company. Confident in the RTO’s profitability and reputation, the owner set his own expectations on transition and saleability focusing solely on the financials and the established curriculum that had brought the company success over the years.

I actually disagreed and provided examples and statistics on the contrary and we ended up going our separate ways. A few months later, the vendor of Alpha Training Solutions came back and we shared what had transpired in the few months.

Issue

The owner, deeply involved in the operations, failed to consider the buyer’s perspective on the effect this would have on future maintainable earnings.

The asking price, while reflective of the company’s past successes, did not account for the significant investment needed to update staff and training materials.

Moreover, the owner overestimated the value of the RTO’s longstanding industry relationships, which were tied personally to him rather than to the business.

There was an over reliance on the RTO’s past achievements and did not address potential growth areas or flexibility for new ownership.

The vendor wanted to highlight the extensive client lists and detailed training programs without showcasing how these could be adapted or expanded under new leadership.

His original approach made the business less attractive to younger entrepreneurs or firms looking to integrate the RTO with innovative educational technologies or modern teaching methodologies.

Outcome

He wasted 3 months hoping to attract a buyer without thinking like a buyer. Potential buyers, initially interested, were deterred by the mismatch between the asking price and the apparent investment needed to adapt the business. They were also concerned about the transferability of client relationships. As a result, the business lingered on the market with a different and less experienced broker which caused great frustration for the vendor.

When we started re-visiting the RTO, we developed a buyer-centric approach and within 21 days, we had a buyer at the asking price and we achieved out triumvirate of a sale at the highest price, in the least amount of time and best termsTM.

Lessons Learned

The case of Alpha Training Solutions underscores the importance of RTO vendors adopting a buyer-centric approach in the sale process. By understanding the buyer’s needs and expectations, vendors can more effectively position their RTO for sale, addressing potential concerns and highlighting opportunities that resonate with prospective buyers. This includes:

Being realistic about the value transfer of personal relationships.
Clearly outlining the potential for business adaptation and growth under new ownership.
Adjusting the marketing message to appeal to a broader range of buyers, focusing on the future potential, not just past successes.

This case study serves as a critical lesson for RTO vendors on the necessity of viewing their sale through the eyes of potential buyers, ensuring alignment between business valuation and market realities.

Conclusion: A partnership approach

Ultimately, the goal of thinking like a buyer is to foster a sense of partnership. When RTO vendors approach sales as a collaborative, transparent, and mutually beneficial process, they significantly increase their chances of successful transactions. This
buyer-centric approach not only facilitates smoother sales but also establishes a foundation for future success under new ownership.

By integrating these strategic insights into their sales approach, RTO vendors can achieve not just immediate sales success but also contribute to the ongoing vitality and growth of their RTO under new management, thereby ensuring a legacy of quality and excellence.

Conclusion

For RTO vendors, thinking like a buyer is not just about making a sale—it’s about creating a match between the buyer’s strategic business needs and the RTO’s offerings. This alignment not only helps in closing the deal but also ensures the RTO’s continued success under new ownership.

Understanding the buyer’s perspective empowers RTO vendors to position their offerings more effectively, fostering better relationships, and ultimately facilitating successful transitions.

Travis Latter is the Senior Education M&A Advisor with Infinity Business Brokers – The RTO Specialists. He has been awarded QLD Specialist Business Broker of the year and twice Australian Business Broker of the year Finalist.

With over 140 RTO sales and a passion like no other, his experience and dedication provides him with the ability to work closely with all industry stakeholders. The goal is to ensure successful transactions happen in the optimum time-frames, with the best results for all.

The focus is ALWAYS on achieving a sale at the highest price, in the least amount of time and best terms.

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