Business Outlook 2025 | Children's Social Care

Throughout 2024, market activity was moderate with limited opportunities available to buyers due to many operators holding on to their existing businesses and expanding them where possible to keep up with the increase in demand for services. As a result, demand was heightened for high-quality operational businesses and well-located vacant properties which benefitted from C2 use and CLD.

Some 12 months prior to the Autumn Budget, Ofsted commenced registration of supported providers, giving oversight of supported accommodation for children in care and care leavers aged 16 to 17 years. Although the process has started, inspection reports in any great volume are not yet available. The demand for this service is still strong, however, there remains a number of unregulated services trading, and these are still being utilised by local authorities, particularly for children with complex needs.

On 9 October, The Local Government Association (LGA), called for the Chancellor to ensure councils are fully funded and resourced to tackle the rising demand for support from vulnerable children, following its latest figures that revealed over 600 child protection investigations are carried out by councils every day. The Autumn Budget pledged a significant increase in funding for local authorities, shortly followed in late November by the announcement of the ‘biggest overhaul in a generation to children’s social care’.  The Government cited that the ‘major reform aims to end years of neglect of the children’s social care support system – breaking the cycle of late intervention and helping keep families together wherever possible so every child has the opportunity to thrive’. This change comes as local authority spending on looked-after children has ballooned from £3.1 billion in 2009/10 to £7 billion in 2022/23, with social workers all too often burdened by heavy caseloads, struggling to deliver the help that children and families need before problems escalate.

2024 also saw the private children’s social care market in Wales become increasingly destabilised following the Welsh Government's introduction of the ‘Eliminate Agenda’ whereby, from 2026, councils in Wales will no longer be able to place children and young people in their care within services operated by for-profit providers. With three-quarters of children’s homes in Wales run by private companies, the market is going through a seismic structural change.

As of 31 March 2024 compared with figures taken on 31 March 2023:

• A 26% rise in the number of ‘family assessment centres’ 
• 3,491 children’s homes of all types (12% increase)
• 35 adoption agencies (no change)
• 31 voluntary adoption agencies (no change)
• 34 further education colleges with residential accommodation (no change)
• 1 secure training centre (no change)
• 332 independent fostering agencies (1% increase)
• 98 residential family centres (26% increase)
• 12 residential holiday schemes for disabled children (8% decrease)

Source: Gov.uk  - Main findings: children’s social care in England 2024 - GOV.UK

• Increased merger and acquisition activity
• Continued buyer appetite for quality businesses with proven earnings, especially established businesses with experienced management teams
• Properties with the benefit of permitted C2 or C2a use will continue to command premiums over those sold on a vacant possession basis with C3 use
• With local authority funding shortfalls, we fear that commissioning into services at lower cost points could result in children’s individual needs not being met
• Continued stagnation of the market in Wales in the short-term

In May 2024, Cap10 Partners partnered with the existing Compass management to acquire 100% of Compass Community Children’s Services (Compass) - a leading UK provider of therapeutic fostering, residential, and special education for children with high acuity and complex needs – from majority shareholder, Graphite Capital.

This significant transaction spanned two key childcare and education markets, notably the children’s social care and SEND education sectors, in which opportunities to acquire such operational business portfolios have been few and far between in recent years, creating intense competition between buyers.

In the five months following the announcement of this transaction, Graphite Capital, in partnership with Storal, completed the notable acquisition of Children 1st Nurseries, thus further building their appetite and enthusiasm to support growth and investment in the UK’s childcare and education sectors.