Market View - New Regions

Despite current global economic uncertainty and inflation, mergers and acquisition (M&A) activity in the UK, the nursery sector remains strong and well ahead of activity in other sectors. This is driven by the sector’s long-term fundamentals, its resilience, ongoing consolidation and the number of platforms already committed to buy-and-build.

While there has traditionally been a particular focus on London and the Home Counties, there is increasing appetite for acquiring in other regions too. This is driven by investors looking to take advantage of the shifts in residential and working patterns post-Covid, and to diversify away from the traditional saturation of acquisitive demand in the South-East, which has been driving multiples to sometimes unpalatable levels.

M&A activity is being supported by growth in infrastructure to enable transactions and cater for diversity in investor appetite, including sale leaseback partners, specialist advisers and financing (both debt and equity).

With the number of buyers chasing what is a limited number of truly high-quality childcare businesses for sale at any time, it will be important for them to show discipline, not only in prices paid but also in understanding the opportunity and risks – otherwise they could be in danger of their investment underperforming against their expected returns.

This is accentuated by the fact that currently the biggest threat to post-acquisition performance is sufficiency of staffing rather than post-Covid demand recovery. As well as many resounding successes post-acquisition (not just financial, but also improved service for children and parents in conjunction with this), we could point to one or two recent ‘cautionary tales’ born out of investor naivety. Overall, we expect the M&A market for nurseries to continue to remain buoyant for the foreseeable future, benefitting buyers, sellers and customers.

• Cairneagle is now part of law firm and education sector specialist VWV