Valuation Methods for Apprenticeship Training Providers

Apprenticeship training providers are responsible for delivering high-quality learning that equips UK workers with new skills. According to the International Monetary Fund (IMF), there’s a severe skills shortage in the UK, expected to cost the country £120 billion by 2030.

It’s why the apprenticeship training market is so lucrative, empowering entrepreneurs to benefit from a high-demand, low-supply market. Whether you are looking to purchase an existing training provider or sell your own, knowing how to value these businesses properly is essential.

In this guide, we discuss how to value these companies, the different methodologies, and what’s in store for the market as a whole.

Valuing an apprenticeship training business for sale

An apprenticeship training business may be valued in any number of ways. It’s standard practice to employ multiple methodologies to get the most accurate figure possible. Unlike other types of firms, several industry-specific factors must also be brought into the equation.

Some of the industry-specific factors that valuation agents will consider include:

·  Performance – High achievement and progression rates among graduating apprentices demonstrate effective programs, which drive the value of your business.

·  Employer Satisfaction – Positive satisfaction rates among employers encourage further business because companies see the value of taking the time to train and retain apprentices, thus making the brand more valuable.

·  Specialisation – How a training provider positions itself also matters. This is part of your market positioning, and so delivering customised programs in high-demand areas can differentiate a brand and increase its value.

·  Apprentice Management – Training providers play a crucial intermediary role on the administrative front. This includes registering and tracking apprentices, as well as regular reports. A firm that masters these functions is instantly more valuable.

These factors go beyond simply looking for a well-managed business. Training providers that can differentiate themselves and provide the skills the UK workforce desperately needs will reap the rewards. It’s not purely about the quantity of apprenticeships sold and the number of business partnerships formed.

Valuation methods for apprenticeship training providers

There’s no single methodology for valuing an apprenticeship training provider. Valuation experts will deploy multiple appropriate valuation methods to get a complete sense of what a training provider may be worth.

It’s the part that most companies struggle with, with an estimated one in three SME business owners not knowing how much their business is worth. Let’s examine the three major categories of valuation and some of the techniques that fall into each one.

Income-based approach

The income-based approach for valuing a training provider focuses on the organisation’s ability to generate future income. It examines the cash flow it produces and extrapolates that into the future. The most common methodology is the Discounted Cash Flow (DCF) method, which is designed to project cash flows for the next three to five years, before using a discount rate to get a present value for the business.

Another option, if a training provider has a relatively stable income, is the capitalisation of earnings method. A valuation agent will take a figure like net profit and divide it by a capitalisation rate to get what’s viewed as a reasonable rate of return for any potential buyer.

Market-based approach

The market-based approach uses comparable training providers that have sold recently. Valuation experts search for similar apprenticeship training providers and examine what they were sold for. With enough data available, it becomes relatively straightforward to arrive at a rough figure of what a firm may be worth.

The downside of the market-based approach is that it’s reliant on finding businesses similar enough to your target business. If data is unavailable, the market-based approach becomes much less effective.

Asset-based approach

An asset-based approach will value a training provider based on its registered assets and existing liabilities. Initially, it sounds like a straightforward way of valuing a business, but it relies on being able to deliver an objective fair market value for each asset. Additionally, intangible assets, like intellectual property and brand, often aren’t properly accounted for.

Some training providers with insignificant intangible assets can be valued this way, but if a brand brings tremendous value, another valuation methodology may be more appropriate.

The future of the apprenticeship training market

It’s no great secret that the UK is suffering from a severe skills shortage. With the government moving away from its sole focus on university-level education, several reforms have been brought in over the past few years to enhance the value and importance of apprenticeships.

The public is largely on board with apprenticeships, with one report revealing that 44% of Britons believe that apprenticeships provide young people with better prospects than university. Approximately 75% of those surveyed said they would react positively if a family member told them they had enrolled in an apprenticeship.

It illustrates that there’s an enormous opportunity for apprenticeship training providers, with an expected boom in training demand in the 2020s and 2030s. But what are the key trends shaping the future that training firms must be aware of?

· Employer Influence – Government reforms have given employers more say over how apprenticeship programs are structured, the content within, and how they are assessed.

·  More High-Level Apprenticeships – Apprenticeships are no longer just for young people entering the workforce. There’s a growing number of senior-level apprenticeships, from level five and up. It’s a sign that there’s a trend toward upskilling existing workers.

·  Targeted Focus – Central funding is being increasingly diverted towards programs in sectors where critical skills gaps are, including construction, technology, social care, and healthcare.

It’s a sign that the nature of the market is changing, and training providers capable of acknowledging and embracing those trends could benefit from a significant market opportunity. Purchasing an existing training provider and orienting it toward where the market is going could be your next business venture.

At Hilton Smythe, we know the importance of valuations to avoid overpaying for businesses for sale. With our objective, experienced consultants, we can support you in obtaining accurate valuations for apprenticeship training businesses on the market now.
To learn more, get in touch with us today.