The ‘Language’ of Mergers & Acquisitions in ELT...

• Every industry has its own language and technical terms.

• This can be very daunting if you don’t know what they mean; and you want to sell or buy a business in ELT in the UK or Ireland.

Issue 3 of The School Report is about explaining these terms in simple terms as they are normally used in the English Language Teaching (ELT) industry in the UK and Ireland. Its purpose is to help the first-time Seller or Buyer of an ELT business.

They are an experienced layman’s guide and no more.

But I have been through the M&A process in ELT many times, first selling my own ELT business for a record multiple; and then helping lots of other owners sell theirs.

See Stop Press at the end of this report for: Current multiples being achieved in the ELT industry.

Note: I was lucky when I sold my first business, Pilgrims Language Courses Ltd of Canterbury, because the minority shareholder was employed at Deloitte; so, he knew the language and process of M&A in corporate sales.

General Terms...

Earnings

• A general term used to describe the Earnings of a company i.e. the money that a company makes for its shareholders.

Multiples

• What Multiple did it sell for? This is asking about the number of times its Profits that a business sold for. A business that sold for £1m and was making £100,000 Profits, sold for a Multiple of 10x.

Turnover or Revenue

• Both terms are often used interchangeably in ELT to refer to the top line in the Profit and Loss of a set of accounts.

ELT or EFL or ESL

• Are generally interchangeable abbreviations throughout the industry, although some lawyers would argue!
• ELT is English Language Teaching.
• EFL is English as a Foreign Language.
• ESL is English as a Second Language.

Dividends

• This is the term used for payments to the Shareholders of a company.

NDA and CA (Non-Disclosure Agreement and Confidentiality Agreement)

• They mean the same thing and are designed to ensure that the parties affected only talk to each other on the matters stated in the NDA or CA.
• NDAs and CAs are common practice in the buying and selling of ELT businesses. They are an attempt to control careless gossip and ensure confidentiality.

Accounts

• PBT means Profit Before Tax.
• EBIT means Earnings Before Interest and Tax.
• EBITDA means Earnings Before Interest, Tax, Depreciation and Amortisation.
• COS means Cost of Sales in a Profit and Loss account. COS are normally all the variable costs before the Overhead such as commissions, teachers, activity staff etc.
• Gross Margin is used to state the Gross Margin (GM) that a business is making before its fixed overheads and is often stated as a % of the top line i.e. of the Revenue or Turnover.
• Amortisation refers to the process of spreading the cost of intangible assets over their useful life.
• Depreciation is the same, but with the fixed assets.

‍

The Sales Process...

‍

Information Memorandum

• The IM is a document to present and market the business for sale.

The Data Room

• This is an electronic filing cabinet where the company for sale files all the documents it wants the Buyer to see and read.
• Access to the Data Room is normally controlled by the Seller’s lawyers.

Due Diligence

• Often shortened to ’DD’, means the process of Investigation that a potential Buyer of a business will undertake before making a Confirmed Offer for a business.
• There are typically 3 areas of DD in an ELT sale:

Financial DD

• Involves an analysis and validation of the Seller’s financial matters and records.

Commercial DD

• An analysis of the Seller’s overall competitiveness and market strengths.

Legal DD

• The process of collecting and assessing all the legal documents and information relating to the Seller.

Heads of Terms, often shortened to HOTS

• HOTS are a landmark document in any sale process, although not normally legally binding.
• In simple terms, HOTS are a summary and broad outline of what the Buyer and Seller have agreed before they each instruct their lawyers to draw up and negotiate the contract for sale, often called The Sale and Purchase Agreement, or SPA.

Exclusivity Agreement

• This is an agreement by the Seller not to talk to any other Buyer for a set period of time such as 60 days after they have agreed on a provisional price.
• It recognises that a Buyer will be spending time and money looking into all the details of the Seller and their company.
• It is a similar idea to giving somebody the first option to buy, for a set number of days.

The Sale and Purchase Agreement, or SPA

• This is the critical and effectively the final document in any corporate sale.
• It is the Agreement for the Seller to sell, and the Buyer to buy; and sets out all the terms of the contract.