Childcare & Education
Our team is renowned across the day nursery and education sector as the ‘go to’ advisers, providing services to the whole early years market and looking after childcare business lifecycles, from conception to exit.
Over the past year, and continuing during 2017, we have seen significant activity across the UK day nursery sector, with an increase in acquisition enquiries, nursery inspections, market appraisal requests and transactions.
As we bridge 2017’s half year point the market has remained incredibly strong largely due to the appetite of buyers, lenders and investors, teamed with an increase in owners deciding to exit. In most cases the execution of an owner’s exit strategy is principally due to their desire to pursue retirement plans. However, the buoyancy in the market has also enticed some owners to sell their businesses earlier than they had originally planned.
Many of the opportunities which Christie & Co has been called to advise on during the year were subject to very strong interest, multiple offers and speedy completion processes. The most successful sales processes for both groups and larger single asset sales are those that are presented to the market in confidential sale campaigns, and also where the opportunity is realistically priced resulting in competitive bidding.
Highly competitive bidding for group opportunities and single assets were noted throughout 2016, culminating in multiple group transactions including the sale of: Positive Steps Day Nurseries, First Class Child Care, Bush Babies Nurseries, Yellow Brick Group, Little Unicorns - and in the largest deal of the year, the sale of Asquith Nurseries, for a reported £166m.
The outlook for the remainder of 2017 continues to be very positive. Within the first four days of 2017 we were delighted to announce the sale of Magic Nurseries to LPCR, France's leading private nursery chain and one of the largest premium private nursery groups in Europe. Q1 2017 closed as positively as it had started with the announcement of the intended acquisition by Busy Bees of Treetops Nurseries, a portfolio comprising 61 nurseries and high levels of transactional activity continued into Q2 with the announcement of multiple sales including Jenniflowers, Barn Kids, Redroofs, the £95m sale of the Pine Fund and the announcement by Busy Bees of their intended acquisition of Canadian group, BrightPath Early Learning in a reported $145m deal.
We predict that there will be a number of other major UK and overseas nursery portfolio transactions announced during Q3 and Q4 2017.
Last year our team advised on childcare and education assets with an aggregate value in excess of £1.1bn, including the valuation of the Childbase portfolio for client information and secured lending purposes, and strategic transactional and valuation advice ahead of the Asquith Day Nurseries portfolio sale to Bright Horizons Family Solutions. Based on levels of deal activity as at half year 2017, we predict that 2017 could be a record breaking year for day nursery transactional activity.
The UK nursery sector continues to be highly fragmented, and we continue to see an increase in demand from national and regional nursery groups seeking to expand their businesses via acquisitions and organic developments, as well as increased enquiries from early years operators, investors and overseas buyers.
With a positive start to the year across the country we are seeing a demand for high quality settings on both a leasehold and freehold basis. Prices are being driven by an appetite from new entrants to the sector, existing operators looking to expand, UK investors with management teams in place looking to buy and build and then overseas investors looking to buy a platform in the UK. While there are still challenges in the sector which include the implement of 30 hours, NLW, Brexit and staff concerns, the sector overall is seen as resilient. Some of these challenges may end up being to much for some operators to handle which will see some closure across the country but this should then bolster existing settings and increase occupancy.
Eager buyers continue to principally seek high quality freehold or leasehold settings with a minimum of 50 places, which can demonstrate proven and established levels of EBITDA and present opportunities for further development. They also look for assets which have been subject to ongoing capital expenditure, enjoy Good or Outstanding Ofsted outcomes, and those which employ a highly qualified, well remunerated and autonomous workforce.
From a regional perspective, while there continues to be high demand across the UK, the most desirable areas for buyers continue to be the South West, the Home Counties and London. This demand is driven by the high fee levels that some settings are able to achieve across these regions.
The most highly desired assets are those which are held on unencumbered freehold titles or those which are leasehold on leases which are inside of the Landlord and Tenant Act, with rents which are either at or below market rent, and businesses which can demonstrate solid sustainable earnings.
Buyers are sophisticated and while there is high demand for quality settings, they are continually mindful when considering the longer term potential impact and the full year effect that the living wage will have on the businesses they are contemplating acquiring, as salary expenditure continues to be the largest operational cost of any nursery business.
Thus far, Brexit has not had a negative impact on activity in the UK childcare market, indeed we have actually witnessed positives emerging with increased interest emerging from overseas groups and investors seeking UK platforms, in part arising due to enhanced monetary gains for overseas potential purchasers, due to the fall in the value of Stirling.
Owners and buyers alike are increasingly thinking about the introduction of the 30 hours ‘free’ entitlement which is planned from September 2017. However, because there are so many unknown quantities and variables yet to be determined, this makes it incredibly difficult to accurately forecast the overall impact on the market and the prices that buyers may be willing to pay.
Education and Specialist Childcare
As with the children’s day nursery market, demand for both private education and specialist childcare businesses has been consistently growing throughout 2017.
Private education sector growth has been driven by the demand for education globally, as many have a greater aspiration for an enhanced life. The UK market is one of the most mature worldwide and is high in the rankings with regard to deal activity due to the demand from both international and domestic investors. London, Oxford, Cambridge and the South East continue to be a focal point for many companies who are looking to expand, invest and develop within the UK, however there are other affluent pockets of the country with established demand. Generally across the UK the demand outstrips supply, and as such, there is evidence showing a growth in multiples achieved. The expectation is for activity and demand to continue to grow within the sector for the foreseeable future, along with further growth in international activity.
The specialist childcare market has remained active during recent years following a heightened focus on quality and appropriate provision for children with additional needs. Across foster care services, children’s homes and SEN schools, there has been a consistent level of appetite for good quality provision as both regional providers and national providers look to continue investing and developing their groups. Demand is consistent across the entire UK, with the desire for operators to provide both rural, more secluded locations, along with those that offer the benefits of local amenities, transport links and communities. Coupled with the fact that it is a needs driven, local authority income lead business, the country wide demand is unlikely to slow down, with the only operators potentially facing more difficult trading conditions being those that haven’t appropriately managed the implementation of the National Living Wage, sleep-in pay and pension contributions. That said, in many cases the desire to acquire appropriate vacant properties, former children’s homes or closed schools can often be as appealing and generate strong levels of interest.
If you're a buyer or investor, keen to learn more about the sector, including changing and emerging trends, comparable deal evidence, USPs and the impact of potential policy introductions on business operations, or if you are contemplating the possible sale of your childcare or education business, please contact our specialist team.