Market View - Is Austerity Coming?

Since my last column a few short weeks ago, the sands have shifted once again and we have a new PM in place, as well as a new Education Secretary and a new children's minister.

At the time of writing, we are awaiting the implication of this Government and of the Chancellor's Budget on the early years sector. However, it feels that we are entering a period of short-term ‘stability’ of policy relative to the political flip-flopping we have experienced over the last six months. Stability of course doesn't necessarily mean ‘good’, as we are unlikely to have any meaningful reversion of the increasing gulf between funded and private rates, and there is more than a whiff of austerity in the air.

Beyond the Government's current term, we of course have to understand what a Labour government (if elected) might mean for the PVI sector, beyond its proposed support for more maintained nurseries.

In the meanwhile, there has been strong M&A appetite and over the past month we have seen transactions completed by the likes of Kids Planet, Grandir, Bright Stars and Just Childcare – among them the acquisition of Three Little Birds illustrates that there is still appetite for growing in, and ability to transact in, London and the home counties despite the recent shift in the weight of M&A towards other regions.

However, we are now also beginning to see some operators pare back from M&A or be more cautious, for different reasons. We are aware of one group which has decided to deprioritise acquisitions while it feels the market is ‘too hot’ and the economic returns on high valuations are uncertain. There are also a handful of transactions (bigger and smaller) which have recently failed to complete on account of staffing and catchment challenges. While, as I have opined before, acquisition activity in the childcare sector will be stronger than in other sectors, we also believe that buyers’ selectivity and diligence is only likely to increase as we enter uncertain times.