How are current market challenges impacting buyers and sellers?

“In uncertain times, external challenges have got to, in some form, affect the market, haven’t they?” - This is a question we get asked regularly by sellers, buyers, and investors looking to enter the early years sector, so I thought it would be useful to outline how such challenges are potentially impacting the market for both buyers and sellers.

The impact of 2022

When we began 2022, off the back of testing times through the Covid years, no one was quite sure how the year was going to pan out or how market conditions would impact buyers’ and sellers’ sentiment. It wasn’t long before we had the answer to that question, and we were gearing up to what was going to become a very busy year for the UK transactional market.

The competitive tension we were able to create between hungry and active buyers and the availability of some of the leading groups coming to the market made a perfect storm in terms of the number of offers agreed upon and deals completed. In fact, 2022 turned out to be one the biggest years in transactional terms for the Childcare and Education team at Christie & Co.

We brokered a whole spectrum of deals, from individual settings through to some of the most well-known and renowned groups across the UK, including Cherry Childcare, Egg Nursery Group, Hove Village Nurseries, and Sunbeams Nursery Group to name a few!

However, on balance, by the end of 2022, there were clear challenges that were gathering pace in the sector regarding finding staff, the cost of funding, and the options available for individuals looking to acquire. In simple terms, funding has become more expensive, and finding new staff in a shrinking pool of options has become a headache for most owners. So, where does this leave the childcare market as we progress into 2023?

Challenges and opportunities for buyers and sellers in 2023

Q1 2023 has been busy!

Most years start with conversations with buyers, about what are they looking for and where? This year was no different in that even with the challenges noted above the demand for quality individual nurseries and groups is still high!

We have seen a shift from buyers solely considering London and the Southeast as target areas, to them broadening their geographical horizons. They are now considering settings in other areas of the country which they previously thought less attractive or more of a challenge operationally, with hubs like Bristol, Birmingham, Leeds, Newcastle, and the Northeast now on more buyers’ target lists.

There has also been good news for owners of more rural/semi sites, one criteria for some buyers is they like their nurseries to be surrounded by ‘chimney pots’ but as we have seen people move out of city centres and be more prepared to drive to drop their children off at the setting of their choice with maybe more time in the working day to do this, buyers have seen the positive of acquiring settings that have been able to reap the benefit of this change in lifestyle and work patterns of parents and see their occupancy grow!

The challenge around making sure a nursery is profitable is intrinsically linked to the location of a setting its size and the fees it can charge, some smaller settings which are funded-led are less desirable for buyers who are, instead, gravitating towards sites of 60+ places as economies of scale kick in and they are able to get to occupancy levels which enhance profits. Price increases seem to be the topic of conversation with a lot of owners, and to keep up with rising costs we are seeing these happen multiple times throughout the year in some settings, sometimes for in excess of 10%.

If you own a setting smaller than, let’s say, 60 places and above, this doesn’t mean smaller settings won’t or can’t sell, it’s just that their buyer pool can be smaller and more reliant on bank funding. In fact, so far this year, we have brokered a plethora of smaller settings, including the notable sale of four YMCA childcare settings in Hampshire which were earmarked for closure.  These have been acquired by two local operators who were keen to expand their operations in a location and demographic that they know well, so we are pleased to have helped keep the continuity of provision in these areas and demand is still there for these settings.

After some 23 years in the sector, I can note that the value of nurseries has never been higher in terms of what buyers are prepared to pay and how they ascertain value in terms of a multiplier of profit. Like all markets, this can go up and down but, given some of the larger deals that have happened in the sector and the investment that buyers are willing to put into buying nurseries over the last few years, I am confident that, once again, this resilient sector will continue to thrive and deal with all of the challenges that are thrown at it.

For more information, or for a confidential chat about your business options, contact Nick Brown: nick.brown@christie.com / 07764 241 316