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14 July 2020 | Childcare & Education

Child Centric Sectors 2020 Half Year Review

To be writing this at the beginning of July, amid a global pandemic and UK heatwave is certainly not a situation I could have possibly envisioned when late last year I began drafting our Christie & Co Business Outlook Child Centric sector market predictions for 2020.

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 Courteney Donaldson
 Managing Director - Childcare & Education

 T: +44 7831 099 985
 E: courteney.donaldson@christie.com
 
 
We would like to take this opportunity to thank all child centric providers; owners, operators and their staff who during these difficult times as frontline support have provided nurturing care to vulnerable children and key workers’ children. Your support and contribution has been vital in helping the country through this pandemic.
 

 


2020 CHILDREN’S DAY NURSERY TRANSCATION


CASE STUDIES: PRE COVID & AMID UK LOCKDOWN

In terms of Child Centric Sector transactions as we look back on the first six months of the year, three transaction deal phases are very much evident. The first of these being pre COVID-19 deals completing prior to UK lockdown being enforced, with those transactions continuing to evidence the huge global demand for high-quality child centric opportunities across the country. There is no better example of this than the sale of the Kids Allowed group, which completed after a very competitive bidding process, and saw substantial interest from multiple international bidders. 

The second phase included those deals which completed during the height of this pandemic and amid UK lockdown. Such completions reinforced buyers’ perceptions that the COVID-19 pandemic is potentially short term and confidence remains in what is viewed as resilient sector, with day nurseries especially seen as good long-term prospects for acquisitive buyers.

Finally, there are those deals which have reignited after lockdown and new ones which have been agreed since, which will go onto complete in the coming weeks. Our wider view is that premium settings will become even more premium as some nurseries will unfortunately fail. Values won’t move significantly as these are driven by buyer demand and as recent activity levels have shown, buyers are keen to re-engage and agree deals in this space.

 Nick Brown
 Regional Director & Head of Brokerage - Child Centric Sectors
 M: 07764 241 316
 E: nick.brown@christie.com

 
 
 

LEASE ADVISORY FOR THE CHILDREN’S DAY NURSERY SECTOR


 Mike Hodges
 Managing Director – Healthcare Consultancy
 M: 07764 241300
 E: Michael.Hodges@christie.com

 

Christie & Co has a long-established pedigree of representing day nursery owners and operators in lease advisory related work. Over the last 14 years I have acted continuously for one of the UK’s leading day nursery operators in a wide variety of lease advisory assignments, from rent review advice to lease re-gears, renewals, and wider lease restructures. My work for other nursery sector clients on lease advisory matters extends over a
wider 23-year period. 

NURSERIES AND CHILDCARE IN A POST-PANDEMIC WORLD

As a business, we have a comprehensive understanding of the day nursery sector, the challenges operators are experiencing during the current difficult time and the dilemmas which will be faced as the lockdown eases and settings begin to reopen to the wider public. With many parents furloughed or working from home, it is clear that demand for nursery places will be heavily influenced by how the wider economy recovers, with childcare requirements being adjusted and additional factors such as the need to protect the elderly and clinically vulnerable people being key drivers. 

THE BUSINESS OF A DAY NURSERY

A key element of Consultancy’s work involves the provision of strategic advice relating to operational businesses, where my colleagues and I are experts in understanding the key drivers behind a day nursery business and, therefore, its ability to pay rent. This twin track approach of looking at a combination of property
and operational factors enables us to tailor our approach to each situation to maximise our chances of achieving the best possible outcome.

Most landlord discussions which have occurred to date have involved the negotiation of short-term rent holidays or other concessions relating to the lockdown period. Landlords have generally sought to work in partnership although many are also balancing the need to cover their own obligations with rental income often being used to repay bank debt. 

As the sector moves forward with nurseries re-opening, many operators will face a normalised rental bill with these short-term concessions ending. This makes it vitally important for day nursery operators to have a carefully considered strategy in relation to any assets held on a lease and this is an area where my colleagues and I will be very pleased to assist.

Please do not hesitate to get in touch if you would like to chat through your current situation. We will be delighted to assist and treat each conversation in the strictest confidence
 



INDEPENDENT EDUCATION


 Courteney Donaldson
 Managing Director - Childcare & Education

 T: +44 7831 099 985
 E: courteney.donaldson@christie.com
 
As we entered 2020 the demand from buyers for independent education business, including schools, tuition centres and language colleges remained strong. Competition from buyers spanned domestic and international trade purchasers, alongside investors all of whom continued to seek high calibre establishments with excellent reputations and established earnings.

The positive market outlook for the year ahead was further fuelled as Blackstone announced their acquisition of student accommodation provider iQ in a £4.7bn deal which became the UK’s largest-ever private real estate transaction. With over 28,000 student beds, a further 4,000 beds in pipeline development and a portfolio that spans the UK, the deal further evidenced heightening demand and global investor interest in the UK’s educational establishment infrastructure, a trend which began to emerge some five to six years ago.

London and the South East, key hotspots for educational business buyers, saw completions including the sale of House School Group to Dukes Education, while buyer appetite for individual assets outside of London and the South East also remained strong, as evidenced by the sales of Heathfield Knoll School, Kidderminster and The Language House, Liverpool.

The sequence of events associated with the UK COVID-19 lockdown all happened incredibly quickly. While some independent schools were able to swiftly transition to online learning platforms, not all schools were able to move with the same degree of transitional pace. This teamed with different approaches to implementing school fee reductions proved challenging in some instances. Some independent schools and language colleges were already facing pre COVID-19 financial challenges and not all have been able to access additional financial support.

While some of the larger global education groups may decide to pause aggressive acquisition programmes, approximately 80% of business sales completed by Christie & Co since January 2019 have been businesses assets sold to independent purchasers. We do not expect a decrease in supply of educational businesses for sale over the next few years. Bank appetite remains steady across the independent education sectors and our colleagues at Christie Finance have been on hand through the pandemic assisting both operators seeking short term cashflow funding solutions, alongside assisting buyers in securing funds to facilitate their acquisition and expansion plans. 

The education business market in general is considered to be robust and often regarded as a safe haven for investors for investors, with schools increasingly being seen as essential infrastructure – even in the current climate we’re seeing a degree of confidence and optimism for new business, and the current pipeline of deals which have been agreed/in legals has not been negatively impacted to any great extent.

During the UK lockdown many buyers have been keen to agree deals on new acquisitions, particularly because the lead time from deal terms being agreed to actual transaction completion on average takes six months.

Despite the challenges of the last quarter, there was a significant surge in activity. This was in part due to a notable increase from buyers seeking larger independent day schools nationwide, as well as providers of specialist educational services seeking D1 premises for expansion, alongside buyers seeking day nursery businesses. The profile of buyers seeking independent education businesses is incredibly varied and ranges from Head Teachers looking to acquire an independent school in the UK or indeed internationally should they be open to relocation, through to schools seeking mergers with local providers. National groups still keen to consolidate and investors too have been reaffirming their desires to acquire to educational platforms for buy and build investments, alongside individual school acquisitions.

Our team have continued to see plenty of activity from potential sellers who are asking us to provide advice. Despite physical visits to schools having been prohibited during lockdown, our team have been able to view schools virtually via campus videos being shared with us. In recent weeks, having been permitted to recommence property inspections we have been able to inspect schools in order to provide confirmations on pricing recommendations as originally provided on a desktop basis during lockdown.

Due to the impact of COVID-19 a small number of schools have made the incredibly difficult decision to close permanently. On such projects whereby we are appointed to facilitate a sale, proprietors and trustees have been awarded comfort by the calibre of potential purchasers that we have been able to swiftly introduce. During lockdown we were able to facilitate prospective buyer viewings via school video tours, and by late May we were able to recommence physical tours for buyers, albeit with new COVID-19 inspection measures in place. These have been working well, indeed deals have been agreed off the back of a number of these video tours, and feedback from sellers and prospective buyers alike has been incredibly positive.

During recent weeks we have also seen fantastic examples of new innovation being introduced to potentially create new revenue streams by some schools, notably associated to the expansion of online learning programmes, which have transitioned incredibly well and award further prospects for potential growth beyond the current school cohorts.

The next few months will be a pivotable period for education business and as we move toward the commencement of the new academic year it is hoped that by late August/ early September operators will have a clearer picture of what pupil numbers and the future trading performance might look like. There will be challenges ahead as some operators incur costs from bringing businesses out of hibernation alongside further pressures for leasehold property occupiers to pay rent.

However, what we have learnt over many years is that the UK’s independent education sectors are resilient and it is hoped that with continued support of all stakeholders the majority of educational establishments will be able to successfully trade through this difficult period and come through on the other side sustainably.
 


RESIDENTIAL CHILDCARE & FOSTERCARE


 Julie Kitson
 Director, Healthcare
 
 M: +44 7870 917 854
 E: julie.kitson@christie.com


Christie & Co’s expertise spans a range of childcare and education related businesses, all of which are incredibly different. However, despite the differences, the one thing that we, and many of our clients had the forefront of mind was the impact that the COVID-19 UK lockdown would have on vulnerable children.

Few parts of the children’s services arena have been left untouched by Covid-19 pandemic. The number of children in the care system has risen for the seventh year in a row to more than 90,000 which is putting pressure on foster care with over 8,000 new foster carers required throughout the UK.

With pressures on families during lockdown, a rise in abuse and neglect, the additional demand for foster care places has also led to a surge in referrals for short term children’s home placements, with the majority of referrals being for older teenagers whose foster care placements have broken down. Barnardo’s have recently reported that this is creating a “state of emergency” in the care system. Looking ahead, as we begin to emerge from lockdown, there are concerns an increasing number of young people may be identified to be in need of intervention. 

During the past twelve months, the market has remained incredibly buoyant, we have successfully completed on numerous residential childcare portfolio transactions and are currently working on the sale of a large foster care business, despite COVID-19 we do not anticipate any slowdown in demand or market activity.

In what is an incredibly complex and demanding sector, we are receiving more enquiries for good quality businesses. Specialist children’s services businesses, be they residential, foster care or specialist education, are increasingly seen as strong performing alternatives to traditional care investments.

It is difficult to predict the short-term future where the pandemic is concerned, but it is certain that specialist childcare is seeing unprecedented demands for placements which makes it a viable and somewhat future proof investment.
 


CHILDREN’S ACTIVITY CENTRES AND FAMILY ATTRACTIONS


 Vicky Marsland
 Senior Business Agent - Child Centric Sectors

 M: 07526 175 857
 E: vicky.marsland@christie.com


With families increasingly reliant upon dual incomes teamed with increases in women returning to work, family time has become very precious. From activity centres and adventure playgrounds, through to zoos and children’s theme parks; family attractions and activity orientated businesses, these diverse markets have continued to evolve.

Our Child Centric team are aligned and collaboratively work alongside our multi award-winning leisure team led by Jon Patrick. Accredited with the accolade of being awarded ‘The UK’s most active agent in the leisure and hotel sector’ for five consecutive years our leisure team are the UK’s ‘go-to’ advisor, with expertise across Leisure and Fitness clubs, Ten Pin Bowling Centres, Multiplex Cinema complexes, Holiday Parks and Golf
Centres.

Over the course of the past decade Christie & Co have provided valuation, consultancy and transitional services to a wide range of nationwide clients whose businesses span a spectrum of incredibly diverse range of family attraction and activity businesses. With clients including, Twycross Zoo, Pettitts Animal Adventure Park, Merrivale Model Village, Blackbrook Zoological Park, Gust Swim School, Partyman World of Play, Magic & Mayhem and Manor Adventure, we have an extensive breadth of knowledge and market reach, which extends to international franchising of UK visitor attraction brands overseas, alongside facilitating mergers and acquisitions.

Since UK lockdown in mid-March, COVID-19 has had an enormous impact on children’s activity centre and family attraction businesses. With visitor footfall completely ceasing at this time, the impact that closure has had on many of these businesses has been significant. Poignantly, desperate pleas from many UK zoos have been in the news. Twycross Zoo CEO, Dr Sharon Redrobe OBE passionately spoke for UK Zoos at the Zoos and Aquarium All-Party parliamentary group on 24th June 2020. During the session she made the point that, “ we are very grateful to the government for the coronavirus job retention scheme, but we can’t furlough chimpanzees or rhinos, nor the staff that clean and feed them. We haven’t been able to down tools and save enough cash”. While the Prime Minister confirmed that zoos and safari parks in England were permitted to reopen from 15th June, providing social distancing measures are in place, the financial impact on zoos and indeed many family attractions, be they commercial or charitable status operations, will be long and hard felt.

As some attractions prepare to reopen, Christie & Co’s sister company Vennersys has added extra functionality to its VenposCloud visitor management system, helping attractions open safely amid COVID-19 pandemic. The VenposCloud solution allows operators to easily manage ticketing, events, memberships, stock control and other operational resources. It combines Epos, online ticketing and cross-site selling in one solution and includes detailed reporting. As further UK attractions prepare to reopen during July, with additional health and safety procedures in place, such as mandatory online ticketing, visitor caps and social distancing rules Vennersys’ technology is on hand to help with this. The management of daily intended visitor numbers has become a primary focus of operators, as has consideration around promoting the awareness and importance of social distancing by visitors. For family attraction businesses offering indoor based activities, be these soft play centres, trampoline centres and indoor party venues, there are additional complexities depending on the nature of activities offered that providers are carefully considering and seeking to work though.
 


COVID-19: IMPACT ON PROPERTY VALUATIONS


 Jeremy Cashmore
 Head of Valuation – Child Centric & Care Sectors
 
 M: 07771 955 145
 E: jeremy.cashmore@christie.com


COVID-19 has undoubtably changed the lives of every person in the United Kingdom and the challenges caused by the pandemic to the property sector, specifically valuation services, may impact on the market for some time to come.

Valuation is the practice of estimating the price a hypothetical buyer would pay to a willing seller at a given point in time. There are many factors that go into establishing price otherwise known as market value including the identification and adjusting of recent similar sales (comparables) and establishing if any uncertainty surrounding the property or the market may affect its value.

These assessments of market value are carried out by Royal Institution of Chartered Surveyors (RICS) registered valuers and represent one person’s opinion at a specific point in time and are accordingly subjective in nature. All valuations have a degree of uncertainty and it is the skill of the valuer to identify, quantify and disclose these uncertainties wherever possible.

However, there comes a time when the level of uncertainty goes beyond the norm and this is known as material uncertainty. Material uncertainty is defined in the RICS Red Book Global Standards as, “where the degree of uncertainty in a valuation falls outside any parameters that might normally be expected and accepted” (VPS 3.2.2(o)). With the UK Government not making any long term economic or political plans, as well as putting into place unprecedented support packages including the Business Interruption Loan Scheme and the COVID-19 Job Retention Scheme, COVID-19 meets this definition of material uncertainty and could therefore have an impact on the value of property. 

In a statement released by the RICS on 2 April 2020 regarding the impact of COVID-19 on valuation, it stated that, “if an RICS Regulated Member concludes that declaring material uncertainty is not appropriate, there should be a sound rationale to explain the decision-making process and this should be recorded for future reference”. It goes on to state that, “in considering the degree of uncertainty at a specified valuation date, careful regard should be had to the level of activity in the relevant market and the existence, and degree of reliability, of recent or contemporary evidence”. Whilst the decision to disclose or not disclose material uncertainty lies with the valuer, it must be explicitly stated in the valuation report if it is.

WHAT IS CHRISTIE & CO DOING?
Christie & Co continues to be the market leader in our specialist markets. Our market expertise places our valuers in the best possible position to determine whether to report material uncertainty to clients. The strength of our brokerage teams means that we are uniquely placed to offer clients well informed, considered advice and only if appropriate, values will be adjusted to reflect any material uncertainty in the markets, caused by COVID-19, which will be explicitly stated when reporting.

Having completed thousands of valuations and rent reviews  across our specialist business sectors over many years, we have built up an impressive database of market intelligence. This proprietary knowledge helps us fully understand the true value of our clients’ businesses and commercial properties.
 

BUYER REGISTRATION INDEX* - ALL CHRISTIE & CO SECTORS (BASED AT 100)

 


Christie & Co has recently launched the first edition of a new Buyer Registration Index. The data which is derived from new buyer registration activity on Christie & Co’s website, provides a real time indicator of buyer sentiment and demand for operational real estate across all the specialist sectors which Christie & Co operates within. For additional context relative to the UK’s transition out of the nationwide lockdown, the results are overlaid against motor vehicle traffic data.

The new index was launched following continual requests from investors, operators and banks for guidance on the extent of buyer appetite and liquidity for the specialist sectors which Christie & Co operates within. Whilst there are different nuances for each sector which require careful interpretation, the child centric sectors saw a 140% increase in new website buyer registrations from the period of 27th April to 22nd June. This is extremely positive and shows that buyers regard the sector as being resilient and attractive for investment.

Overall and despite the challenges of the last quarter, the Index shows a positive correlation between website derived buyer activity and vehicle traffic movements. These have grown by 70% and 89%, respectively, since 27th of April. We anticipate further increases as the lockdown eases with the hotel, hospitality and non essential retail sectors now gradually re-opening.
 


CHRISTIE FINANCE

For over 40 years, Christie Finance has been developing excellent relationships with all types of lenders, ranging from key high street banks through to alternative lenders. Having developed an in-depth insight into the market, they hold strong relationships with key lending contacts. If you are looking to acquire a childcare buisness.

Christie Finance is on hand to help.

In order to protect the future of your business, you may also need quick access to finance. The Christie Finance Unsecured team may be able to help with:
• Cash Flow
• One-off Purchases
• Developments/expansion projects
• Fund or Reimburse self-assessment or corporation tax liabilities

 John Mitchell
 Managing Director
 
 T: 07974 265 259
 E: John.Mitchell@christiefinance.com