Born in the USA - chain takeover

When a successful British nursery chain was sold to a US firm it set others in the sector wondering who might be next. Annette Rawstrone  investigates

The star-spangled banner has unfurled over the British private childcare sector, as staff at the London-based chain Nurseryworks accustom themselves to being taken over by an American childcare company.

Bright Horizons Family Solutions (BHFS) announced the first trans-Atlantic acquisition of a British nursery chain last month, following discussions which began just before Christmas. The chain manages more than 300 workplace nurseries in the US and can now add Nurseryworks' eight UK nurseries to its tally.

Under the takeover, the British chain's founder Susan Hay has become managing director of BHFS in the UK and remains managing director of Nurseryworks, which will retain its identity.

While the announcement has come as no big surprise - in our latest Nursery Chains supplement American chains were quoted as saying they are considering expanding over here - it has sparked speculation within the sector. Why choose Nurseryworks? Will other American chains follow suit? What plans has BHFS got? Which chain could be next for takeover?

The million dollar question, quite literally, is how much did BHFS pay? No one is saying, but it is certainly millions of pounds. Childcare management consultant Martin Pace says, 'I've heard that they paid more than the standard market value' - because, he believes, 'the timing was right for them'.

Susan Hay admits, 'We were not waiting for the call, but it came at an opportune moment. Nurseryworks is ten years old this year and we had come to a watershed and got a number of centres and wanted to develop more but were not sure how. We knew that it was not just a question of raising money but also building on our experience, so the approach was very timely.'

BHFS's president Roger Brown was also thinking big, maybe even worldwide. 'I think the whole early education sector has been slow to embrace global expansion opportunities,' he says.

BHFS's clients include leading companies such as IBM, Hewlett Packard and Motorola. Mr Brown's incentive to operate in the UK came from such large corporations wanting the option of international childcare provision to meet the needs of their increasingly mobile and international workforce.

BHFS already runs a National Access Program, where clients are able to buy places in nurseries throughout the US. That has been renamed 'International' and client companies now have the possibility of linked childcare options wherever they operate.

'Clients said they needed a global strategy for a work/life programme in other places,' Mr Brown explains. 'The UK seemed the place to start because most larger American companies have organisations there - two of our big companies, HSBC and Glaxo Wellcome, are based in the UK.

'Although culturally the UK and the States have many similarities there are still many differences, so I thought that the best way to approach providing nursery places would be to find a suitable company and partner with them. We searched high and low and discovered Susan.'

BHFS and Nurseryworks already had several clients in common, including Chase Manhattan Bank, HSBC and Time-Warner, making them ideal partners.

Brown says their current targets are 'modest' because they want to spend time integrating culturally, but expansion will be immediate. A new site at Canary Wharf, London's new business centre, will be announced soon and BHFS is already in discussions with more American clients with a view to providing British-based childcare for them too.

From there Nurseryworks plans to expand beyond London and into the continent. 'We have been a niche in London up to this point and are now able to project,' says Ms Hay. 'We want to serve the client better and ensure that we can respond to our clients needs wherever they should be, whether in London or in Europe.'

The new venture will also provide more back-up care for parents when their regular childcare arrangements elsewhere are not available. Currently Nurseryworks provides back-up places at three of its nurseries and will consider opening isolated back-up centres at clients' request, while BHFS has 34 back-up centres with 18 solely dedicated to this service.

'If I make a prediction I would say that back-up care will grow fairly rapidly in London,' says Mr Brown. 'People with school-age children need back-up care too because working parents can find it impossible to arrange their schedules around the school vacations. Back-up care is likely to be a big part of growth in Europe too.'

Buying other nursery groups is likely to be part of that expansion. 'If we find people who are compatible with us and excited by what we do, then we would be very interested,' says Mr Brown. 'We would be interested in finding something in Ireland and are probably more likely to look at that than the UK. We are consulting with organisations on the continent and if a client we are already working with wants to go to, say, Brussels or Milan, then we may do that even without a full-blown partner.'

BHFS is not the first American childcare company to venture into the British sector. KinderCare Learning Centres, which owns 1,200 nurseries in the US, arrived on our shores five years ago and set up two nurseries. Its growth here has not been as rapid as anticipated but director of UK operations Becky de Tenley says it is considering expansion, perhaps through buying nurseries.

She anticipates other American childcare companies following suit. 'There is demand for places which is not totally met right now by UK providers, so it is a great market,' she says. 'An acquisition is very appealing because you are buying more than just a business. A company may have the know-how from the States but there are big changes and cultural differences. When a business is acquired the staff are in place and it also cuts out the building costs which are expensive here.'

So who would BHFS, or similar American chains, be interested in? Despite BHFS's ambitions to move into Ireland, there are no obvious takeover contenders in Ireland. Martina Murphy, operations director for Dublin-based Circle of Friends Group which owns two nurseries, says there are no large chains around.

'It is a new departure in Ireland where, compared to America and the UK, childcare is in its infancy and therefore the mindset of parents and families is quite different,' she says. 'A large chain's move over here would have a big impact on the sector.'

Within the UK, 'the right sort of nurseries are at a premium at the moment,' says Martin Pace. 'Nursery chains will be able to offer a larger company, like an American-based business, an opportunity to grab a share of the market.'

Ripe for picking, he believes, are chains which have attracted funding from venture capitalists, which may soon be looking at disposing of their investments.
Meanwhile, childcare business consultant Sandra Brouet speculates, 'I think there will be more takeovers of other chains with nurseries in workplaces, because the corporate sector holds a lot of potential and is ripe for expansion.'

One name being bandied around is Jigsaw, but chief executive Tom Shea is coy as to whether the chain, with 25 nurseries, has been approached. 'We have made it transparent that we are looking to build to a sensible size and will continue to grow when we can,' he says. 'We would never say never, but integrity would have to be there as well as money.'

Although Nurseryworks received approaches from various British chains, BHFS was the first American company to come knocking. They may not be the last to come calling at chains' doors.