Read-a-thon Fundraising Inc, a Texas-based fundraising platform for K-12 schools, could be an attractive target as the shift to remote learning has jolted its brick and mortar-oriented peers, said Howard Gottlieb, founder and president.
Founded about seven years ago, Read-a-thon.com challenges kids to commit to 10 reading sessions over a two-week period. Friends and family are asked to make a one-time donation to encourage the student and support his or her school. Read-a-thon provides the materials and tracking.
Gottlieb, who is almost 64 years old, is a serial entrepreneur. He owns almost all the equity in the company, apart from a small non-voting share he gave to his lead developer, he said.
“I’m not willing to give it away. Over the next couple of years, I’d see us being acquired,” he said.
Tyton Partners, a boutique investment bank focused on education, has been cultivating a relationship with the company for two years but Read-a-thon has not yet chosen an advisor. “It shows you we’ve caught some people’s attention.”
The company received an acquisition approach from Scholastic [Nasdaq:SCHL] about three years ago, but he said the offer was too low. At the time, he said Scholastic was paying five times cash flow to acquire book fair competitors. “We’re a tech company. We’d want an extraordinary multiple for it,” he said.
Now, he thinks Read-a-thon could be in a position to make an offer for Scholastic instead if it were to team up with a financial sponsor. “On paper, it makes tremendous sense – or they wouldn’t have approached us.”
In the meantime, Read-a-thon signed an agreement with Scholastic’s biggest competitor, Follett, which is relatively new to the school fundraising space. Follett agreed to offer Read-a-thon’s platform. That agreement is not reflected in his company’s current revenue, he said.
Read-a-thon would welcome strategic distribution partners. “The bottom line for us is there are 140,000 elementary schools in the USA. We were on pace to help 2,000 of them. We want help getting distribution into the other 138,000.”
This year, the company will have 1.5m readers in the US on its platform, with millions of families on its website for four to six weeks during fundraising season.
“The fundraising industry as a whole has been decimated. We may be the most logical option standing,” he said. Industry leader Scholastic has furloughed 111 employees for its school book fair division, according to a media report. K-12 schools use annual book fairs as major fundraisers. The average school raises USD 9,800 through the Read-a-thon platform and gets to keep about 80% of that total. Some schools raise as much as USD 80K, he said.
Read-a-thon was spun out of Gottlieb’s former company, Easy Fundraising Ideas. “We used its cash flow to start Read-a-thon,” he said. About three years ago, Easy Fundraising Ideas was sold to one of its customers, a candle manufacturing company, for undisclosed terms. The all-cash acquisition was through a shell company called Easy Fundraising Ideas LLC and was primarily an asset purchase, he said.
Read-a-thon.com launched its first product in 2014 and has never raised capital. The company is very profitable and has strong cash flow, having grown every year since inception, Gottlieb said. In 2019, the company generated revenue of USD 7.5m. When Covid-19-related shutdowns began in mid-March, the company was at USD 5m. “March is our busiest month of the year. At that pace we were on track to hit between USD 15m to 18m.” Instead, he now predicts the company will log 2020 revenue of USD 12m to 15m.
Due to the disruption, Read-a-thon did receive a paycheck protection program loan from the government which covered three months of the company’s payroll and guarantees jobs for the employees for the rest of the year, he said. The company has seven full-time and three additional seasonal employees. “Revenue per employee is crazy high,” he said. “We can scale fast and could probably triple in size by adding four full-time people.”
Competitors include Cherry Dale Farms, Innisbrook Wraps, Yankee Candle Company and Great American, all of which focus on product-based fundraising. Yankee Candle recently shut down its fundraising division, according to a media report. “I called to see if there were synergies there,” Gottlieb said.
The product fundraising market for schools excluding books totals about USD 4bn, he said. The potential US book fundraising market size is USD 1bn to USD 2bn, he estimated, and the company is also entering Canada. Read-a-thon is also available at US Army bases around the world as well as schools in five additional countries.
Lock Lorde is the company’s IP attorney. Linz and Chandler is its general counsel. Rhodes Osiek Patyk is its CPA firm.
by Marlene Givant Star