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This year has seen many challenges thrown at the nursery market with the National Living Wage put up to £7.50 per hour in April, 30 hours ‘free’ childcare being introduced in September and the recent Brexit negotiations already underway.
So is now really a good time to be in the nursery sector?
UK nursery market ‘gets on with the job’
The answer to this is ‘yes’ but with caveats, according to Nick Brown, associate director of corporate childcare at Christie & Co.
“I think 30 hours is the big one. 50 per cent of people we’ve spoken to think it’s the best thing that’s happening, and the other 50 per cent are a bit unsure of what they are going to do.
“Obviously time will tell, but despite this feedback the market still seems very resilient, and I think you will see that it just gets on with the job,” says Mr Brown at the recent Childcare Expo.
One of the biggest signs in 2017 that the market is still healthy is the large amount of acquisitions that have taken place throughout the first half of the year.
Sales have come from all areas of the market, including first time buyers, SMEs and large chains looking to consolidate.
May 2017 saw the biggest acquisition of the year with the UK’s largest nursery group, Busy Bees Nursery Group acquiring Treetops Nurseries, the UK's fourth largest childcare provider, in a whopping £93m deal.
And it’s not just the big boys who are buying in the nursery sector at present. In January, a traditional Montessori nursery, registered for 26 children in Banstead, Surrey, sold to a first-time buyer.
Another notable sale was by Les Petite Chaperons Rouge (LPCR), which owns 300 nurseries in France and Germany. It bought the Magic Nurseries chain of 16 nurseries in a transaction by Christie & Co at the end of January, demonstrating that there is appetite both from abroad and for medium-sized groups.
Asia, UAE and China ‘looking toward the UK’ for acquisitions
All of these mergers and acquisitions activity suggests the market is still buoyant and nurseries with strong management in place can still make healthy profit margins.
Foreign buyers don’t seem to be too deterred by Brexit at present and still have an appetite for the UK nursery market with interest ranging from France to China, according to Courtenay Donaldson, the head of childcare & education at Christie & Co.
“We are increasingly seeing overseas operators and investors, especially from Asia and the UAE, looking toward the UK in a bid to identify and acquire high quality education assets" she says.
“Likewise, UK education business owners are starting to look overseas for high-quality education business acquisition and investment opportunities, with Asia, UAE and China proving increasingly desirable and sought-after localities."
The most sought-after areas for foreign investors are the South, South East, and London, with financially successful, high-quality nurseries having deals often completing within days of going onto the market.
For anyone even thinking about buying or running a nursery, there are some important sector specific requirements to think about when it comes to staffing, even before the issues of Brexit, National Living Wage and ‘30 hours’ come into play.
For example, nursery management teams should know to look at the Early Years Foundation Stage Framework, which stipulates minimum levels for space and staffing per child and the qualifications of nursery staff needed.
These requirements can mount up to a huge staffing bill and this is the area which will be most challenging for most nursery managers and owners to maintain. However, it’s not all doom and gloom, as Nick Brown at Christie & Co explains:
“One of the things that is mentioned to us a lot is staffing. For example, where nurseries have found good staff they have got to try and keep them. I think relaxations of the qualifications has been a great help for the sector.”
In March this year, The Department for Education changed the requirements for nursery practitioners wanting to take their Level 3 qualification and reinstated Functional Skills as an alternative to grade C in GCSEs in English and maths. The early years sector had been campaigning for the change due to problems with recruitment.
Mr Brown advises that when costing, “we advise that staffing ratio should be 50 per cent to 60 per cent of turnover”.
He adds: “Having management with lots of sector experience that make sure profit margins aren’t eroded in areas such as staffing and at mealtimes, is key to meeting the challenges of 2017.”
Nick Brown's tips to future-proof your nursery/group in light of ‘30 hours’
• Seek professional advice:Whether buying or selling, preparation is key. Talking to the right advisors will give you a clearer picture on what to expect and being able to anticipate this will benefit you in the long run.
• Consider a management team: If you are still hands on but your business has grown to a certain size, then perhaps you may want to take a step back from the day to day running of the business. Look at employing a manager to make sure you can dedicate enough time to the overall business strategy – personally this frees time up for you and in the long term if you decide to sell. Most buyers are looking for a business where the setting can continue without too much upheaval, when the owner does look to exit the day-to-day running. Continuity is key.
• Consider expansion: Banks are always keen to lend to existing operators who know what they are doing – this is a safe bet. Therefore, adding another setting could be your next move. Finding the right setting is key, so make sure you are able to handle travel distances as this can be a challenge if they are too far apart and being able to share staff and resources can be a big plus with more settings. Growth can come from acquiring another operator or via organic growth of a conversion of a suitable building.
• Consider a sale : There is little doubt that the market is exceptionally buoyant with premium prices being achieved across the country for high quality settings. There is an extensive range of buyers from existing operators, oversees operators, investors and first-time buyers looking to enter the sector. There are certain hotspots but as a rule, all quality settings attract a high level of interest and via a highly confidential sales process, the maximum amount of competitive tension is created to make sure that the best possible price is secured for owners looking to sell.