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High valuations drive 50% increase in childcare assets sold

Bright Stars Nursery Group - Cheshire Day Nursery

During the first six months of the year, activity across the education sector has been buoyant, especially in the UK nursery, specialist childcare and independent schools markets, according to Christie & Co latest report “Childcare & Education: 2022 Mid-Year Review”.

There was a 50% increase in businesses sold and a 51% surge in owners deciding to sell their businesses, a trend driven by the opportunity to take advantage of the skyrocketing valuations that some of the most promising companies have achieved.

Among the most successful deals inked in the UK in the first six months of 2022 there was the sale of Pilrig Nursery in Edinburgh; a portfolio of children’s homes in Liverpool; Armley Grange, an SEMH school in Leeds; Kloisters Kindergarten in Kent and DayDream Nursery in Woking.

Furthermore, several large transactions were signed outside of the UK, including the sale of Australian childcare provider Only About Children, which was sold by Bain Capital Private Equity to Bright Horizons for $320 million.

Overall, from 2021 to 2022, there was a 47% increase in the number of inspections, 51% increase in new instructions, 34% increase in viewings and 99.5% of asking price being achieved, according to the report.

The specialist childcare market was particularly strong, with a wide range of well-funded buyers seeking schools and children’s homes on both an operational and a vacant possession basis. One of the most notable transactions in this segment was the merger between Accomplish Group and Keys Childcare.

Nursery segment

The nursery market recorded robust activity in H1 2022, with first-time buyers competing head on with experienced buyers for high-quality settings with recovered occupancy, stabilised earnings, and established teams, according to Christie & Co.

There was increasing appetite from both existing operators keen to grow their portfolios, and operators of smaller nursery groups – typically with one to four settings – whose businesses have fully recovered to pre-pandemic levels of trade and are now trying to expand.

Furthermore, there was continued eagerness from real estate investors wishing to enter the sector, alongside an increasing number of investors keen to partner with high-calibre management teams to boost growth via buy-and-build strategies. According to the report, this trend is expected to be further fuelled by the dynamics of the sector and the consolidation opportunities available, despite the challenges of a highly regulated industry.

The report also underlined that during the first half of the year there was a little slowdown in demand from buyers for brownfield nursery development sites as well as lower levels of interest in properties with vacant possession and those in need of extensive refurbishment.

This was largely due to strong upward pressures associated with the cost of construction materials, along with material and trade labour shortages and supply and logistic problems.

Going forward, Christie & Co expects prime development opportunities to remain sought after by buyers, while tertiary locations are likely to see more sedentary levels of interest from buyers, with the cost of capital and timescales for ROIs increasingly being at the forefront of buyers’ minds. Difficulties relating to workforce recruitment and retention are also factors shaping buyers’ risk factor appraisals.

Independent schools

The first six months of 2022 proved that appetite from those seeking to acquire and invest in independent schools has not been dampened by the pandemic, according to the report.

The independent schools segment attracted a wide pool of investors, many of whom have educational backgrounds. There was a strong increase in buyers’ appetite for smaller provincial schools – a shift in trend compared with pre-pandemic times – as well as renewed interest in the sector from overseas school operators, according to Christie & Co.

Among the largest deals inked in the segment there was Patron Capital Partners’ acquisition of Wishford Schools, exclusively reported by EducationInvestor Global.

Wishford Schools

While buyer demand for operational schools has remained intact, the volume of transactions has been slightly contained this year so far. According to the report, this was due to financial performances being largely distorted for the financial years ending August 2020 and August 2021, with buyers for schools being more cautious in comparison to buyer behaviour across other market sectors.

The report also underlined the existence of a broadening gap between schools that have been revived, and those in increasingly untenable financial positions, with business casualties coming to the market, including some provincial schools, colleges and tuition centres which have failed to regain student numbers.

“Whilst activity in the independent education market remains strong and buoyant, the sector continues to be quite polarised, with some schools flourishing and experiencing good, and even improved, recovery, through to those that are feeling the added stresses of increased expenditures and staffing pressures, coupled with occupancy challenges,” said Rosie Adlem, director, childcare and education, at Christie & Co.

Despite the increasing number of headwinds, the outlook for the remainder of the year looks positive, according to the report. Throughout the most challenging of times, the childcare and education markets have long proven to be resilient and are forecast to remain buoyant and ready for further consolidation.

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