Christie & Co reviews day nursery market in 2023 mid-year report

The report begins by reviewing policy, funding, and regulation, noting that, in ‘Stop Underfunding - Start Building Futures England’ survey, the National Day Nurseries Association (NDNA) found that 79 per cent of survey respondents continue to experience a shortfall in funding and that, in the first six months of this year, Christie & Co saw many smaller settings close – most of which were in deprived areas – partly due to these funding shortfalls. Data published by Ofsted at the end of June shows there were 4,800 fewer childcare providers at the end of March compared with the same time the previous year, raising fears over how the expansion of the funded hours will be met. 

In Scotland, Audit Scotland’s review of the 1,140 hours expansion report found that, despite £1 billion invested annually, the sector is fragile and funded providers continue to report risks to their sustainability. Meanwhile, in Wales, National Minimum Standards came into force on 18 May 2023 with a key focus on safeguarding, paediatric first aid, and training. 

Market Activity 

Whilst 2023 has been busy in terms of transactions across the country, Christie & Co notes that some of the larger operators and single-site operators who are looking to buy are taking stock and reviewing the performance of their own portfolios to ensure their cost bases are under control. 

 Despite this, the broker experienced:  
 

• 30 per cent increase in the number of day nursery inspections 
• 20 per cent increase in the number of new day nursery instructions 
• 131 per cent increase in the capacity of day nurseries they have sold, with the average per setting being 83 places, compared with 63 places in 2022. 
• 106 per cent of asking price achieved on day nurseries, a 6.5 per cent increase on the previous year 

Alongside operational reviews, to meet increasing costs, particularly last year and in the first six months of 2023, operators have needed to significantly increase their fees, taking them to unprecedented percentage levels.  

The integration of acquisitions has been made slightly more challenging for everyone due to the shortage of staff across all qualification levels. High-quality staff are being lured out and, in some cases, poached, as the pool of suitably qualified recruits continues to shrink. While Christie & Co data shows that 9.5 per cent of qualified staff hold a formal teaching qualification, many operators are now focussing on their own training academies to ensure they have the necessary talent in their settings. 

Christie & Co says not much has changed in terms of what buyers are looking for; at the top of their wish lists are high-performing individual settings and small clusters, with many larger groups becoming targets for private equity investors looking to gain further ground in the sector. All the major UK hubs have seen activity, and, for the right assets, there has been plenty of competitive tension between buyers, resulting in owners continuing to achieve superb prices for their businesses. In a summary of the largest early years provider in the UK, Christie & Co marks Busy Bees as the biggest, with 367 settings across the country, followed by Bright Horizons which has 287. 

International markets 

Last year, Christie & Co reported unprecedented levels of domestic and international market activity. However, amid uncharted waters, major headwinds such as high inflation and workforce challenges have led many ECEC groups to batten down the hatches, resulting in subdued market activity levels so far this year.   

That said, Christie & Co remains optimistic about the market for the remainder of the year, saying there are “plenty of reasons to remain confident” and it expects international activity to gain momentum in Autumn/Winter 2023. 

The funding landscape 

Christie Finance says that lenders are keen to support operators that excel at providing a superior level of early childhood education and care, whilst staying close to the day-to-day financials, and are agile enough to adapt to an ever-changing financial landscape. The finance broker notes the Bank of England base rate increase by 3.75 per cent in the last 12 months (1.25 per cent in June 2022 to 5 per cent in June 2023) has created unrest amongst buyers and operators alike as the affordability for first-time buyers is reduced and operators are working on lower profit margins due to higher debt service costs. Increased funding into the sector has been long-awaited by childcare providers and parents alike, but it is unclear if the funding will cover rising costs, if it will suffice for operators, and how it will be implemented. 

Nick Brown, Director & Head of Brokerage at Christie & Co, comments, “The first half of 2023 was in keeping with 2022 and has seen buyers concentrate on the acquisition of high-quality individual assets and premium small groups/clusters across all areas of the UK. Whilst we can all recognise the recruitment and cost pressure challenges in the sector and the economy as a whole, we have a very busy pipeline of transactions primed for completion for the second half of the year.”   

For the full Childcare & Education: Mid-Year Review 2023 report, visit: https://www.christie.com/childcare-education-mid-year-review-23/  

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For further information on this press release, contact: 
Phoebe Burrows, Corporate Communications Manager 
P: 07540 063 598 or E: phoebe.burrows@christie.com 

Visit Christie & Co’s Business Search page to find out more about current Childcare & Education listings.