When selling or buying a childcare centre, the structure of the transaction is just as important as the purchase price. The way a deal is structured determines how ownership transfers, how payments are made, and how risks are allocated between the buyer and the seller.
Different deal structures may be used depending on factors such as tax considerations, regulatory approvals, financing arrangements, and the preferences of both parties.
This section introduces some of the most common deal structures used in childcare business transactions.
Selling the Business as Share Sale #
In a share sale, the buyer purchases the shares of the corporation that owns the childcare centre.
This means the buyer takes ownership of the entire company, including:
- The business operations
- Licenses and approvals
- Contracts with suppliers
- Lease agreements
- Employees
Because the legal entity remains the same, some operational aspects may transfer more smoothly.
However, in a share sale the buyer also inherits the existing liabilities of the company, including potential past obligations or issues that may not be immediately visible. For this reason, buyers typically conduct extensive due diligence before agreeing to a share purchase.
Share sales are often preferred in situations where transferring licenses or government program participation (such as CWELCC) may be more complicated under other structures.
Selling the Business as Asset Sale #
In an asset sale, the buyer purchases the specific assets of the business rather than the shares of the company.
Assets may include:
- Furniture and equipment
- Goodwill and brand reputation
- Enrollment and client relationships
- Operational systems
In this structure, the buyer typically forms a new company and acquires only the assets that are part of the agreement.
One advantage of an asset sale is that the buyer may avoid certain historical liabilities associated with the seller’s company. However, asset sales may require additional steps such as:
- Applying for a new childcare licence
- Assigning the lease with landlord approval
- Reapplying for government funding programs
These additional steps can make asset transactions more complex in some cases. This might also cause the childcare centre to lose the CWELCC funding.
Can I sell my Not-For-Profit Business? #
No. Not-for-profit is not a business that can be sold. You are not the owner of the business. It’s not supposed to be making profit either. You can read more about not-for-profit childcare centre in this article.
Get Paid Later as Earn-Outs #
An earn-out structure allows part of the purchase price to be paid later based on the future performance of the business.
For example, the buyer and seller may agree that:
- A portion of the purchase price is paid at closing
- The remaining portion is paid if the centre reaches certain financial targets over a defined period
Earn-outs are sometimes used when the buyer and seller have different expectations about the future performance of the business.
This structure helps align incentives, as the seller may remain involved during the transition period to help ensure the centre continues to perform well.
Working Capital Adjustments #
Many transactions include working capital adjustments to ensure that the business has sufficient operational funds at closing.
Working capital typically includes items such as:
- Cash balances
- Accounts receivable
- Accounts payable
- Prepaid expenses
The purchase agreement may specify a target level of working capital that must remain in the business when ownership transfers. If the working capital at closing is higher or lower than the agreed amount, the purchase price may be adjusted accordingly. This helps ensure that the buyer receives a business that can continue operating smoothly after the transaction.
Vendor Take-Back Financing (VTB) #
In some transactions, the seller may agree to finance part of the purchase price. This is known as Vendor Take-Back financing (VTB).
Under a VTB arrangement:
- The buyer pays part of the purchase price upfront
- The remaining portion is financed by the seller
- The buyer repays the seller over time according to agreed terms
VTB financing can help bridge financing gaps if the buyer is unable to obtain full funding from banks or lenders. It can also signal confidence from the seller in the future performance of the business.
Holdbacks #
A holdback is a portion of the purchase price that is temporarily withheld after closing.
The holdback amount is typically held in escrow for a specified period of time and may be used to address issues such as:
- Unpaid liabilities discovered after closing
- Breaches of representations and warranties
- Operational matters that require verification
If no issues arise during the holdback period, the funds are eventually released to the seller. Holdbacks provide additional protection to the buyer while allowing the transaction to proceed.
Other Possible Deal Structures #
Depending on the situation, additional structures may also be used in childcare business transactions.
Staged Purchases #
The buyer may acquire the business in stages, purchasing an initial ownership stake and acquiring the remaining shares later.
Management Transition Agreements #
Sometimes the seller remains involved for a defined transition period to assist with operations, staff relationships, and parent communication.
Partnership Buyouts #
In some cases, the buyer may initially join the business as a partner before eventually acquiring full ownership.
Key Takeaway #
The structure of a transaction plays a major role in determining how risks, responsibilities, and payments are shared between buyers and sellers.
Understanding different deal structures, such as share sales, asset sales, earn-outs, vendor financing, and holdbacks, helps both parties design agreements that balance financial interests and ensure a smoother transition of ownership.
