FDD Talk 2020: Sylvan Learning Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Sylvan Learning franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Sylvan Learning franchise, based on Item 7 of the company’s 2020 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Sylvan Learning franchise, based on Items 5 and 6 of the company’s 2020 FDD

• Section IV – Number of franchised and company-owned Sylvan Learning outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Sylvan Learning’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average, median, high, and low gross revenue for the top 25%, mid-upper 25%, mid-lower 25%, and bottom 25% of the 367 licensed territories (including a total of 408 Centers) that operated continuously during the 24 calendar months of 2018 and 2019 under the same or similar form of joint Sylvan and SylvanSync License Agreement which is referenced by and included in the 2020 Disclosure Document

• 2019 average, median, high, and low gross revenue for the 367 licensed territories (including a total of 408 Centers) that operated continuously during the 24 calendar months of 2018 and 2019 under the same or similar form of joint Sylvan and SylvanSync License Agreement which is referenced by and included in the 2020 Disclosure Document, broken down into categories by the number of Centers in operation in each territory

Section I – Background Information

15 Things You Need to Know About the Sylvan Learning Franchise

Announces $2.5 Million Royalty and Fee Deferral Program for Franchise Owners Impacted by COVID-19

1.  At the beginning of April 2020, Sylvan Learning announced a $2.5 million royalty and fee deferral program in conjunction with its majority owners, certain institutional client accounts managed by Guggenheim Investments. Amid the COVID-19 pandemic, Sylvan Learning franchisees nationwide have pivoted their business delivery to be exclusively online. The royalty and fee deferral program will ensure that franchise owners have the support they need to continue providing solutions to families in need of educational support.

2.  John McAuliffe, CEO of Sylvan Learning, said, “It’s been a difficult time for families, in particular those with school-age children, and small business entrepreneurs. The families who rely on Sylvan for their children’s supplemental education have had their educational lives turned upside down with the closure of many schools. These families are looking for solutions that allow them to continue to learn at home and to also continue to receive the supplemental education they were receiving from Sylvan. Our franchise owners have risen to the occasion by quickly pivoting to online delivery and providing support to families and their fellow franchisees during this uncertain time.”

3.  Because of its ongoing investment in technology solutions, breadth of content, and delivery options (in-center, in-home, and online), Sylvan is uniquely positioned to respond to parents’ needs in these challenging times. In June 2018, the brand launched Sylvan Nation, a free online education portal with educational support tips, worksheets, a teacher resource section, and educational videos. Students can also access workbooks online through Random House.

4.  When many centers had to close, the vast majority of Sylvan franchisees pivoted to live, teacher-led online instruction through its proprietary technology platform SylvanSync, and the brand was able to repurpose its remaining paper-based content to be delivered online. Centers are also able to offer teacher-led, online small group instruction based on grade and subject (e.g. 3rd Grade Reading) to support even more parents during this time.

5.  The pandemic also fast-tracked Sylvan’s proprietary marketplace that allows parents to easily schedule both in-home and online tutoring, a program that was in the pilot phase in the Baltimore and Washington, D.C. area that will now be expanded to other parts of North America.

6.  McAuliffe added, “The Sylvan Learning system is stronger, more nimble and more united than ever. We have ramped up our already strong training in online education, local marketing and technology for our franchise owners and expanded our reach for families and students. We are confident we will exit this situation as a company that has transformed itself to better serve every family’s educational needs in the most convenient way, whether they prefer in-center, in-home or online delivery.”

Planned to Open 40 New Locations in 2020

7.  In mid-February 2020, Sylvan Learning announced that the company had experienced unprecedented momentum by bringing more than 50 new franchisees into the system in 2019. According to Georgia Chasen, vice president of franchise development, “2019 was a banner year for Sylvan Learning’s franchise development. Last year, Sylvan Learning brought on 52 new franchisees and opened 24 centers, in both domestic and international markets. Over the last four years, we’ve attracted more than 200 new franchisees to the Sylvan Learning system and we are confident that the trend will continue in 2020.”

8.  According to Chasen, a new generation of entrepreneurs is choosing Sylvan Learning over the competition because of the brand’s industry-leading support infrastructure, passionate network of franchisees, and expert leadership team. “Both our franchisees and corporate owners are mission-driven and do everything they can to drive success for the number one priority: the students,” said Chasen.

9.  CEO John McAuliffe added, “This year [2019], we’ve made several internal investments to create a stronger franchise opportunity. This includes developing a new scheduling and admin system to create easier operations, as well as migrating internal technology to the cloud to create more reliable platforms. We’ve also invested in an in-home tutoring program and hope to roll that out system-wide next year. Through these innovations, we’ve stabilized the system and are excited for franchisees to reap the benefits of these internal investments in 2020.”

10.  Looking to the future, McAuliffe said that the brand is hoping to increase its points of presence by 40 in 2020. “In addition to internal innovation, we’ve invested heavily in franchise development and marketing by creating a strong team to find qualified candidates,” said McAuliffe. “Since our system is over 40 years old, we naturally had a large number of seasoned owners interested in retiring and exiting the system. This led to a significant number of resale locations, but now we are seeing a growing interest in purchasing new territories.”

11.  Chasen said, “For 2020, Sylvan Learning’s franchise development will focus on both established markets and candidate outreach in communities we know will benefit from a Sylvan Learning center. We have open territories all over the country and internationally and encourage candidates to reach out from any state. A few markets we’ve pinpointed as prime for expansion include Chicago, Atlanta, Denver and Northern California.”

Company History

12.  Sylvan Learning was founded in 1979 by W. Berry Fowler in Portland, Oregon. Fowler had previously worked with the educational company The Reading Game and wanted to set up his own business that provided tutoring services to children of all ages and skill levels. The first Sylvan Learning center was a success and Fowler began franchising the concept in 1980. Within a few years, Sylvan Learning had grown to dozens of locations and its headquarters was moved to Bellevue, Washington.

13.  By 1986, Sylvan Learning had over 500 franchises and Fowler sold the company to KinderCare Learning Centers, an Alabama-based chain of childcare facilities that was expanding the scope of its business. Under KinderCare, Sylvan Learning struggled and in 1991, the company was acquired by Douglas Becker and Christopher Hoehn-Saric. Over the next few decades, Sylvan Learning continued to grow around the U.S.

14.  In 2003, Sylvan Learning was acquired by Apollo Global Management. In recent years, Sylvan Learning has closed some underperforming locations, but has made efforts to work with franchisees to open more centers.

Entrepreneur’s Franchise 500

15.  Sylvan Learning ranked No. 252 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Sylvan Learning franchise costs, based on Item 7 of the company’s 2020 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Sylvan Learning’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  508
• Outlets at the End of the Year:  486
• Net Change:  -22

2018

• Outlets at the Start of the Year:  486
• Outlets at the End of the Year:  484
• Net Change:  -2

2019

• Outlets at the Start of the Year:  484
• Outlets at the End of the Year:  485
• Net Change:  +1

Company-Owned

2017

• Outlets at the Start of the Year:  11
• Outlets at the End of the Year:  13
• Net Change:  +2

2018

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  9
• Net Change:  -4

2019

• Outlets at the Start of the Year:  9
• Outlets at the End of the Year:  7
• Net Change:  -2

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• With respect to the Sylvan System, as of December 31, 2019, Sylvan had 456 licensed territories in the United States, including a total of 505 Centers, which provided revenue reports to Sylvan.

• Of these, 367 licensed territories (including a total of 408 Centers) operated continuously during the 24 calendar months of 2018 and 2019 under the same or similar form of joint Sylvan and SylvanSync License Agreement which is referenced by and included in the 2020 Disclosure Document.

• For a consistent comparison, this Item 19 reflects only those 367 reporting territories and 408 Centers.

• This Item 19 does not include revenue from any licensed territory which operated during 2018 or 2019 pursuant to an earlier form of License Agreement which did not include the SylvanSync System offering; all 367 territories that are the subject of this Item 19 used SylvanSync in 2019.

• This Item 19 also does not include revenue from any territories that closed or opened during 2018 or 2019, and therefore were not open for the full 24 months of 2018 and 2019.

• The following chart sets forth certain historic performance information by category for United States licensed territories that operated continuously throughout the 24 calendar months of 2018 and 2019 pursuant to a joint Sylvan and SylvanSync License Agreement. All such licensed territories are included in the following calculations.

• The term “licensee” as used in this Item 19 refers to a person or entity that entered into a joint Sylvan and SylvanSync License Agreement.

• The financial performance of company-owned territories is not included.

• The figures included in this Item 19 have not been audited.

Part 1 – 2019 Sylvan Territory Gross Revenue by Quartile

• This table reflects the total gross revenues from the Sylvan businesses in the 367 reporting territories for 2019.

• The table divides the group into quartiles, based upon gross revenue by territory.

Top 25% of Territories by Gross Revenue (95 Territories)