Demand for residential children’s businesses will surge in 2022

MARKET ACTIVITY & BUYER APPETITE

Christie & Co reports a tsunami of interest from enthusiastic prospective market entrants and reignited M&A activity from established operators, with strong appetite from buyers across specialist childcare sectors and high demand for children’s homes and independent foster care agencies (IFAs). Buyers also remain eager to acquire established businesses alongside vacant properties, enabling them to create new residential provision and additional educational space.

In 2021, pent up buyer demand for specialist childcare businesses fuelled competitive tension for the best quality sites, with prices reaching new heights for prized assets. Christie & Co notes an increase of 21 per cent on childcare business transactions from 2020 to 2021, and an increase on the volume of offers received by 38 per cent on 2020 and an astonishing 45 per cent on 2019.

Due, in part, to buyers commissioning more rigorous financial due diligence, transactions are now taking longer; nine months on average from instruction to completion. Frustrations created by longer deal timetables have been offset by higher prices being achieved, with single asset sales on childcare business in 2021 on average achieving 102 per cent of asking price.

Assuming no structural shifts in policy or funding arrangements, quality businesses with strong, caring, professional, and empathetic values embedded at their core, teamed with good regulatory inspection outcomes and solid relationships with commissioning authorities will continue to be highly desired by buyers and capable of commanding the best premiums.

KEY CHALLENGES

2021 was a particularly hard year for many specialist education providers due to the increase in referrals of children and young people in need of residential placements, challenges around gaining access to the required range of therapeutic and wider support packages, and workforce issues. As a result of these factors and the CMA market study into children’s social care provision (March 2021), Christie & Co witnessed the stagnation of some larger M&A activity that had initially been predicted at the start of the year despite market fundamentals remaining very strong.

With regards to sector challenges, Christie & Co also references research published by Revolution Consulting (May 2021), which revealed that, over the two preceding years, council spending on children’s residential and fostering placements had increased by over £2 billion. Children’s residential care saw a 29 per cent increase in spending, while there was a 13 per cent rise in foster care spending. Between March 2020 and March 2021, private sector residential provision increased by 12 per cent. Private IFAs increased, too, with 19 new providers and the creation of an additional 4,600 places.

MARKET PREDICTIONS

Looking ahead at the UK specialist childcare market in 2022, Christie & Co predicts;

• Demand for residential children’s businesses, especially those that provide a range of therapeutic services, will surge at the end of Q1 and Q2 2022 following the passing of the statutory deadline for the publication of the CMA report.
• Pent-up demand from buyers will fuel competitive tension, resulting in premium prices for those selling during 2022.
• IFAs, especially those with 200+ carer partnership, will continue to be greatly sought after.
• Cash buyers will continue to hold the upper hand.
• Unregulated services will be in the spotlight.

Julie Kitson, Director – Childcare & Education at Christie & Co, comments, “Whilst the market remains active, demand is, once again, outstripping supply. Larger operators are still looking for additional properties and businesses to bolt on due to the high demand of placements. Quality of care, freehold properties and ‘Good’ ratings with Ofsted will remain paramount for buyers which can often result in premium prices being paid. Although a complex sector with a smaller pool of able buyers, we are confident the market will continue to attract interest across the UK, and with a good majority of buyers being PE backed, this means deals are able to complete to a quicker timetable.” 

Courteney Donaldson, Managing Director – Childcare & Education at Christie & Co, comments, “Looking ahead to 2022, there are plenty of reasons for confidence and optimism. Buyer demand is at an all-time high, but we expect further pace to be gained. While some prices achieved for the most sought-after childcare and education businesses have been eye-watering, we do not predict any significant reduction in general pricing. Our childcare and education team is proud to work in a sector where providers exude so much passion, dedication, drive and determination – all striving to deliver the very best of outcomes for children and young people in their care. 2022 will undoubtedly bring new challenges and opportunities. For business owners and investors resolute in seeking to ‘shoot for the stars’, 2022 will be the year to advance.”

To read the full report, ‘Business Outlook 2021: Business Outlook 2022: Adjust, Adapt, Advance’, please visit: https://www.christie.com/news-resources/business-outlook/2022/ 

For further information on this press release, contact:
Phoebe Burrows, Corporate Communications Executive
P: 020 7448 8849 or E: phoebe.burrows@christie.com