Child-Centric | Business Outlook 2020

2019 has mirrored the successes of 2018 in terms of overall activity, although there hasn’t been the same volume of regional portfolio deals as experienced in the prior year. The market has performed well against the brexit backdrop and activity has remained robust. Market and buyer demand remain incredibly buoyant.

CHILDREN’S DAY NURSERIES

Trade buyers and investors alike, large and small, regionally and nationwide are looking at cluster opportunities. The larger corporate groups are taking an interest in smaller opportunities and single assets as they present themselves.
 
Demand continues to exceed supply, fuelling continued growth in values as competitive tension between eager parties looking to expand or establish themselves shows no signs of abating.

MARKET PRESENCE

Whilst there have been fewer regional portfolio group transactions this year, we have seen an increase in single asset transactions. Where the overall number of childcare businesses sold is in line with last year, we have seen an increase in the number of individual buyers. This highlights both the strength of appetite in the market and continued increasing market presence.

The greatest demand from buyers remains across London and the South East. Established provincial businesses are becoming increasingly attractive due to their availability and offer of stronger returns on investment due to regional pricing differentials.

EDUCATION

Appetite for good quality schools remains strong despite what may come due to Brexit, as the British independent education system is likely to hold its own. Activity will continue to be high across the entire sector, although an element of distress in the market is likely to grow – driven in the main by potential government policy changes such as VAT, school charity status and pensions.
 
In 2019, we witnessed an increase in activity across transactional and valuation services as banks and investors have remained supportive of the sector despite wider economic challenges.
 
Christie & Co instructions have seen the full breadth of educational facilities from boarding schools, day schools, pre-prep and prep and language schools.
 
Within the general increase of activity across the sector there has also been a larger degree of distressed advisory work, where we have been appointed to work on behalf of insolvency practitioners representing proprietors, charities and banks for transactional, valuation, finance and consultancy services. Despite an element of wider Brexit comfort, there has equally been nervousness across the mid market, specifically linked to the possible impact of international students with some schools looking for campuses across Europe as a defensive measure. This coupled with the potential implementation of VAT on fees and increasing pension contributions has resulted in additional financial pressures for many independent education facilities.

KEY CHALLENGES FOR EDUCATION IN 2020

• The increase in the Teachers’ Pension Scheme contribution from 16.5% to 23.6% in September 2019 will have brought financial challenges to many schools
• Smaller capacity schools facing financial challenges will see increase in distress
• The ongoing Brexit debate has concerned many operators although we are yet to witness any dilution of overseas interest in the UK
• The number of teachers moving overseas has increased, currently resulting in a net loss
• Pressures on pupil fees has increased for many schools meaning the ordinary annual increases have been difficult to implement

SPECIALIST CHILDCARE

Across the specialist childcare sector in 2019 we saw increased fee pressures as Local Authorities faced financial challenges. The quality of some provision for children and younger adults in care has faced scrutiny due to a number of cases covered by the press relating to ‘imprisoned’ circumstances. The sector remains high risk and issues, if not managed correctly, can result in monumental failings. Overall, the increased number of children in care are putting pressure on the sector.
 
However, we have witnessed an increase in activity across transactional and valuation services, and banks and investors have remained supportive of the sector despite the high degree of risk associated. A number of regional groups have generated multiple bids within a short marketing period resulting in swift sales.
 

KEY CHALLENGES SPECIALIST CHILDCARE IN 2020

• The funding gap for children with additional needs is unlikely to be tackled to the degree required
• Possible increase in high profile cases of families challenging the quality of care they are able to access
• Better quality provisions being developed may result in older facilities facing occupancy or fee pressure
• Providers will continue to receive unprecedented levels of referrals demonstrating the challenge of appropriate placement

 
OUTLOOK
We expect transactional activity in the sector will remain high as vacant buildings, whether former independent schools, former hotels or care facilities, are likely to be developed by experienced operators into new facilities. The number of children in care will continue to grow and the level of acuity will increase.
 
However, as a needs-driven sector, Brexit is unlikely to have any substantial impact although the government position may result in Local Authority cost pressures. We anticipate that the investment market will continue to show interest due to the mature, needs-driven nature of the sector.

CHILDCARE AND EDUCATION MARKET PREDICTIONS

DAY NURSERIES

• Further consolidation in the children’s day nursery sector both domestically and internationally
• We will see the gap compounding between those who achieve success and those struggling

EDUCATION

• School proprietors, trustees and governors will look to diversify, such as increasing provision through
• early years and wraparound care
• The level of distressed sales are likely to increase as cost and operational pressures grow
• Schools will focus on further increasing and enforcing their existing community integration and relationships to combat the ‘elitist’ view being depicted by Labour

SPECIALIST CHILDCARE

• Both regional and national UK operators across the looked after children sector will continue to grow and develop their groups, and operators will look to divest into different elements of care packages
• The number of hospitals or secure units will increase as demand for more acute facilities grows allowing children to be closer to families

 Courteney Donaldson
 Managing Director - Childcare & Education

 T: +44 7831 099 985
 E: courteney.donaldson@christie.com

 
CASE STUDIES

• PROJECT QUEEN

We acted as agent and advisor to the exiting vendors. The privately operated group of freehold and
leasehold assets, including seven homes and one school, working with 19 Local Authorities, was sold to a national provider.

• LITTLE GARDEN DAY NURSERIES

We brokered the sale of a premium group of four leasehold childcare settings located in prime Central London on behalf of Anne de Zoysa and Sue Woodford-Hollick OBE who founded the company some 30 years ago. The group was acquired by August Equity LLP in conjunction with an experienced management team.

• SMALL WORLD NURSERY & ST MARY’S NURSERY

We brokered the sale of an ‘Outstanding’ group of two freehold childcare settings located in Doncaster, South Yorkshire. We were instructed on the sale of both settings together, having realised the market value that could be achieved. The group was acquired by Just Childcare, an expanding national operator.