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Deal flow in nursery sector increases by over 50%

The UK nursery sector has seen strong activity in the last few years, recording an increasing number of private equity-led transactions and attracting a wide pool of investors, including numerous real estate investment trusts.

Around £57 million worth of transactions were reported in 2021, a 54% increase on the previous year and over seven times more than 2019, according to property advisor Knight Frank’s ‘Childcare and special educational needs overview 2022’.

Among the largest transactions, there was the LXI’s purchase of a portfolio of 23 Kidspace Nurseries for around £34 million.

Knight Frank’s report ‘Childcare and special educational needs overview 2022’

The sector, which serves the needs of approximately 3.9 million children below the age of four across the UK, is still very fragmented and comprises a diverse range of business types, structures and sizes.

Of the circa 98,000 places created by the ten largest UK nursery providers, the Busy Bees Group accounts for approximately 33%, with 355 sites and circa 32,000 places.

Knight Frank’s report ‘Childcare and special educational needs overview 2022’

The market fragmentation, as well as its robust performance despite recent economic downturns, has resulted in increased capital deployed by investment trusts and fund managers. A growing number of LXi REIT and AEW showed interest in the sector and invested in nursery portfolios in the third quarter of 2021, according to the report.

The report also underlines that more than 150,000 pupils are in schools which are focused on special education needs, the provision of services to pupils with high learning needs, with the sector’s estimated market value at £4 billion in 2020.

Whilst there is strong public sector penetration, the independent not for profit providers have also attracted private equity funds as well as sovereign wealth funds. An example of this is Mubadala Capital’s 2021 investment in Witherslack.

According to the report, there are 523 independent schools and 117 independent colleges operating in the special education needs space. The higher spending levels within the independent sector is due to the increased focus on individuals with more acute educational needs.

The number of young individuals being highlighted as needing additional educational support has also increased through the issue of education, health and care plans which has grown into a fundamental driver over the past 10 years.

“With economic uncertainty forecast to continue with the cost-of-living crisis amongst other disruptive factors, the resilient and sustainable growth of these childcare sectors is encouraging,” said Julian Evans, head of healthcare at Knight Frank. “The continued population growth and the increasing identifications of individuals requiring additional educational support indicate the sustained demand for these service providers.”

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