Private equity has come for seemingly everything from dental practices and veterinary clinics to funeral homes, HVAC companies and car washes. It has found opportunity in businesses once considered too fragmented, too local or too specialized to attract institutional capital. Now, private equity has arrived at the front door of another highly fragmented industry: private college counseling. I know because it’s my industry.

The Rise Of A Different Kind Of Admissions Expert

Nearly four decades ago, my mom, a former high school counselor, entered private college counseling. Competitors soon followed. Many were founded by parents who had helped their children get into college and decided they could help others do the same. About a decade ago came another generation of competitors: graduates, or soon-to-be-graduates, of elite universities who reasoned that because they had successfully navigated the highly selective college admissions process themselves, they had an example worth selling.

I have deep respect for my organization’s competitors whose businesses, like Ivy Coach’s, are built around the expertise of former admissions officers. But spend five minutes on Instagram and another reality becomes apparent. Parents are still dispensing advice on getting into schools like Harvard, Yale and Stanford with little demonstrated expertise beyond having gotten their own children into college. The credential is often simply: “I did this once.”​

Private Equity And College Counseling

College counseling is fragmented (with over 2,000 consulting companies listed as NACAC members), consumer-facing and often lucrative.

Clarion Capital has reportedly invested in Spark Admissions and Command Education, both associated under the broader Perigon Learning platform. InGenius Prep is reportedly backed by Sterling Partners, Shemmassian Academic Consulting is reportedly backed by Vesey Street Capital Partners and Crimson Education has reportedly attracted venture capital from Tiger Global, among others.

The names are different. The financial thesis seems to be familiar. Take a fragmented market, inject capital, build scale, improve marketing, grow revenue and eventually potentially sell the platform. That playbook has worked spectacularly well in many industries. But there is a problem when you apply it to college counseling.

Why The Product Isn’t Scale But Expertise

A family paying tens of thousands of dollars for college counseling isn’t buying a standardized procedure. Instead, they’re buying judgment, someone who understands the difference between an activity that looks impressive and one that actually distinguishes a student, someone who knows when a student’s story is becoming manufactured, someone who understands how highly selective colleges evaluate applications and, perhaps most importantly, someone who knows what not to do.

Capital can buy advertising, sales teams and acquisitions. It can’t buy decades of admissions experience or sound judgment. This isn’t an argument against private equity. It serves a legitimate function, and plenty of companies become stronger after receiving institutional capital. Rather, it’s an argument that owners should understand what investors are actually buying, particularly when the quality that built the business may not remain the same under new ownership.

When Private Equity Calls

My organization has received calls from investment banks and private equity firms. One private equity associate once told us that only one company in our industry generated a particular level of revenue. We could name several. His confidence was impressive. His market intelligence was less so.

The lesson, however, was clear. Buyers may understand capital structures, multiples, EBITA and exits better than the people who built a specialized business. But that doesn’t mean they understand what makes a 17-year-old’s college application not only competitive but also compelling.

Four Questions Business Owners Should Ask When Considering Private Equity

So, what should independent college counseling business owners, and owners across sectors, do when private equity comes knocking? Ask four questions:

1. What do they think my company is worth? Always hear the offer. A serious buyer can tell you what the market thinks what you’ve built is worth.

2. Where am I in my life? Do you want to retire, diversify, keep building or pass the company to your children? As an example, my organization has already transitioned from one generation to the next. Why not do it again?

3. What are comparable companies selling for? Understand the multiples and what investors believe they can do with it.

4. Would I rather have the check today or own the business five years from now? If the offer represents roughly five years of work, would you rather work those years and still own the business or take the check?

Thinking Beyond The Check

There is, of course, no universally correct answer. For some business owners, the check wins. They want liquidity, retirement, diversification or a new challenge. For others, selling may be the worst financial decision they could make. Because the buyer isn’t purchasing your business because it has no future. Rather, they’re purchasing it because they believe it does.

So, before you hand over the keys, make sure you understand not only what the business is worth today but also what its future might be worth and whether you care about what happens to that future after you sell, whether you remain involved or not. Private equity may be very good at buying businesses. That doesn’t mean it’s better at building them or preserving what made them valuable in the first place.

Brian Taylor is the Managing Partner of Ivy Coach, a leading college consultancy.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.