Mergers and acquisitions activity in the UK over the past month has continued unabated, with acquisition of new sites by groups as well as financial investment into existing businesses. The former include acquisitions by Family First, Bright Horizons and Thrive, while the latter includes Gresham House’s investment into N Family Club.
With a market continuing to be heavily stimulated on the sell-side, price expectations have remained high and palatable valuations have sometimes become an investment challenge. This is in turn forcing buyers to be creative in unlocking value to ‘dilute’ the purchase multiples. They can do this through either revenue enhancement (either via enrolment or pricing) or cost control.
Enrolment opportunities could include short-term recovery of employees’ working capacity after Covid, local market share gain for nurseries which are not optimised or which have historically been systemic underperformers (‘turnarounds’), moving to a full daycare offering (if, for example, the nursery has historically only offered term time) or expanding the number of places.
To get a true handle on seizing opportunities requires a good understanding of the local catchment dynamics and how the nursery fits within that from the perspective of its competitive position and capabilities. This will help to identify both the ‘easier’ fixes (and what needs to be done to achieve these) and what might be more structural inhibitors to growth.
It is not only important to understand the levers during due diligence and negotiations, but also to plan from this into successful post-acquisition integration and measure key performer indicators of success post-acquisition – one of the worst things that can happen is to let the learnings from due diligence ‘gather dust’ on a shelf.
Integration planning should not just be across ‘transactional’ items (such as finance and Ofsted registration), but also be focused on quality, customers, staff and culture.
