The report, ‘Business Outlook 2020: Focus on Business
’ reflects on the themes, activity and challenges of the previous year and forecasts what 2020 might bring across the children’s day nursery, independent schools and specialist childcare sectors, across which Christie & Co are M&A market leaders.
Overall, whilst there have been fewer regional portfolio group transactions this year, Christie & Co observed an increase in single asset transactions across the UK. Where the overall number of childcare businesses sold is broadly in line with last year, we have seen an increase in the number of individual buyers.
Christie & Co report the greatest demand from buyers remains across the London and the South East region. Established provincial businesses are becoming increasingly attractive due to their availability and offer of stronger returns on investment due to regional pricing differentials.
The report highlights trade buyers and investors are interested in cluster opportunities amongst day nurseries at present. The larger corporate groups are taking an interest in smaller opportunities and single assets as they present themselves. Demand continues to exceed supply, fuelling continued growth in values as competitive tension between eager parties looking to expand or establish themselves shows no signs of abating.
When considering schools, key challenges throughout 2019 are identified as financial pressures, brought about from the increase in the Teachers’ Pension Scheme contribution from 16.5% to 23.6% in September, an increase in the number of teachers moving overseas and concerns around the ongoing Brexit debate. In addition, pressures on pupil fees have increased for many schools, making it difficult for some operators to implement the ordinary annual increases.
The report emphasises an appetite for good quality schools remains strong despite what may come due to Brexit, as the British independent education system is likely to hold its own. Activity will continue to be high across the entire sector, although an element of distress in the market is likely to grow – driven in the main by potential government policy changes such as VAT, school charity status and pensions. In 2019 Christie & Co witnessed an increase in activity across transactional and valuation services as banks and investors have remained supportive of the sector despite wider economic challenges.
Across the specialist childcare sector, Christie & Co observed increased fee pressures as Local Authorities faced financial challenges. An increase in the number of children in care is also creating additional pressure.
The report notes this particular sector remains high-risk and issues, if not managed correctly can result in monumental failings. Despite this, Christie & Co suggest the increase in activity across transactional and valuations services is reflective of ongoing support from banks and investors.
Average prices remained economically positive throughout 2019 across almost every sector in which Christie & Co specialises, with Childcare & Education seeing a 4.6% increase in average price.
Looking to the year ahead, the report also outlines Christie & Co’s market predictions which are:
- Further consolidation in the children’s day nursery sector both domestically and internationally
- We will see the gap compounding between those who achieve success and those struggling
- School proprietors, trustees and governors will look to diversify, such as increasing provision through early years and wraparound care
- The level of distressed sales are likely to increase as cost and operational pressures grow
- Schools will focus on further increasing and enforcing their existing community integration and relationships to combat the ‘elitist’ view being depicted by Labour
- Both regional and national UK operators across the looked after children sector will continue to grow and develop their groups, and operators will look to divest into different elements of care packages
- The number of hospitals or secure units will increase as demand for more acute facilities grows allowing children to be closer to families
Courteney Donaldson, Managing Director – Child Centric sectors at Christie & Co comments, “Despite the uncertainty caused by Brexit and the General Election, child-centric businesses across the entire sector remain highly desired by a wide pool of purchasers, including nationwide operators, prospective investors and international groups seeking global consolidation opportunities.
"We observed an increase in ‘distressed assets’ in 2019, principally businesses with operational issues arising due to financial performances. That trend, especially for smaller capacity single settings nurseries in areas of deprivation, or underfunding, and provincial independent school, is set to continue into 2020/21. The greatest demand and premium prices continue to be achieved for those businesses that demonstrate high quality, strong senior management teams and established earnings.
"A highlight of 2019 was the launch of Christie & Co’s inaugural ECEC report on Global workforce trends and associated factors. Our report has received great acclaim and the trends as identified therein are expected to prevail through the year ahead.”