Inside the Deal: School of Rock

The franchising market has long been a favorite within pockets of the investment community. What is new over the past several years is the increasing depth and diversity of interest in franchising which speaks to the highly attractive characteristics of the sector. This enhanced depth of interest has served as a key driver of heightened levels of competition in the sale of these assets. An increasingly robust contingent within the investment community is spending time in the sector given the asset-light nature and scalability of the franchise business model, highly attractive cash flow profiles and rich data and analytics that enable a sophisticated level of predictive modeling.

Consumer services is another sector experiencing a surge in popularity within the investment community. As consumer spending on experiences continues to grow, so has investor interest in the sector given its strength and resiliency in an otherwise challenging macro environment.

As a leading franchisor operating in a highly attractive niche within consumer services (youth enrichment), School of Rock offers a very compelling thesis for investors.

School of Rock’s business model distinguishes itself based on a few key elements:

• Brand – School of Rock is a brand that is adored around the world, and a story that has inspired both a blockbuster movie and a stint on Broadway. A brand of this caliber in the franchising world – with NPS scores in the mid-80s – is incredibly rare.
• Concept Value Proposition – School of Rock has turned traditional music education on its head and completely revolutionized the journey for the next generation of musicians. The Company's teaching method combines live shows, group band practices and individual instruction, delivering an experience unlike anything else in the market. Beyond just music, School of Rock prides itself in fostering an inclusive environment where students grow and develop not just as individuals, but as members of a community.
• Scale – With more than 340 schools around the world and growing, School of Rock is the only concept of scale operating in the performance-based music education space. Scaled assets within franchising are few and far between. Scaled assets in youth enrichment are even more rare. School of Rock’s differentiated concept and unique scale were key to unlocking tremendous momentum in the business – including best-in-class same-school-sale performance and consistent double-digit growth in school count year-over-year.
• Growth – Despite its leading scale today, there is no shortage of runway for continued growth for years to come. Whether it be the opportunity to more than triple the existing footprint in the U.S. and Canada, the expansive international ‘white space’ or the numerous levers to continue to drive same-school productivity, the School of Rock growth story is real and played a critical role in shaping the investment thesis.

With few scaled assets in the youth enrichment space, School of Rock enjoys tremendous scarcity value. This scarcity value meant that numerous interested parties (both sponsor and strategic) had a thesis around the business and were interested in owning the asset from the onset.

Robust interest from the market manifested itself in the form of early and aggressive behavior from interested parties. Baird navigated a preliminary diligence process across dozens of parties – managing interest in a constructive manner that allowed parties to advance both their diligence and conviction around the asset. Successfully navigating this preliminary diligence enabled the process to move very quickly following initial bids.

Critical to delivering a benchmark and expeditious outcome for Sterling Partners and School of Rock was the Baird team’s ability to (i) thoughtfully articulate the School of Rock value proposition and (ii) prepare for and facilitate early and aggressive interest across a very deep buyer pool. Baird’s strong and collaborative relationship with our client, our high-touch and hands on approach to process management and relevant transaction experience in franchising all proved invaluable.

While the M&A and financing markets have been challenged within consumer for a better part of the last 12 months, there remains strong appetite for high quality assets within the multi-unit, restaurant and franchising space. Proof points include several Baird team transactions in recent months. In addition to advising School of Rock, Baird has also partnered with Cava, Savers, Arhaus and Batteries Plus in delivering successful public and private market transaction outcomes.