Childcare market report points to a resilient sector for the future

LaingBuisson’s 16th report details the market outlook of the childcare sector. Although written before the outbreak of Covid-19, the report highlights areas of support needed for the early years market.

The report was authored by Cairneagle Associates and led by the head of childcare practice, Arun Kanwar. Further support on the report was given by Ina Todorova, Pierce Hickey and Sean Cornell.

Arun leads Cairneagle’s childcare practice. Prior to joining Cairneagle, Arun was head of UK Acquisitions at Bright Horizons.

The report looks at private, voluntary and independent group-based (PVI) registered settings that are open for business throughout the year.

In addition, for the first time the report also covers school-based providers that deliver full-day services.

Despite the impact of Covid-19, the childcare market remains a resilient one where both private equity and larger international corporates are increasingly active.

The report highlights that over the last two decades the UK day nursery sector has continued to grow in real market value at c.7% p.a. and has proven to be an attractive place for investors, driven by:

  • Favourable socioeconomic trends (including maternal workforce participation and age of parents giving birth) and financial backing from the government (in particular funded hours for over-threes) – which together have contributed to enrolment growth at levels greater than underlying demographic trends.
  • A higher degree of recessionary resilience than many other sectors (because spend is increasingly ‘nondiscretionary’), demonstrated through sustained real market value growth during the 2008 downturn.
  • High fragmentation, with a wide range of business types and sizes offered for sale.

Funding

Each nation in the UK supports free hours for nursery aged children. In England, In September 2017, the free early education entitlement for three and four-year old children of 15 hours per week was extended to 30 hours per week (subject to certain eligibility criteria).

In 2019, the DfE estimates that some 328,000 children aged three to four benefitted from the extended 30 hours entitlement, an uplift of 11% from the year before.

LaingBuisson points to the fact that the 30 hours funding has proven to be one of the most imperative issues in the sector.

Funding for the early years sector has faced criticism for years as the Government continually ignores the sector’s crucial need for additional funding.

Arun Kanwar, partner at Cairneagle stated:

‘In a way the timing of the report being completed then was very helpful, as it highlights that once we get through these exceptionally challenging times, nurseries are one of the most fundamentally resilient and investible sectors in the UK – over the last 20 years they have moved from being ‘discretionary’ to increasingly social infrastructure to both help parents to stay in the workplace and to give children the best start in life. In fact, the funded offer to help parents to get back to work will need to be a key tool in the government’s strategy to get the country back to work once the lockdown lifts.

‘The Covid-19 crisis – not covered in our report – will no doubt have some lasting impact on the sector including potentially more funding austerity and a difficult employment market for parents. There are always some ‘silver linings’ in that there is increasing recognition of what our incredible sector does in helping parents working in essential sectors to support the country, and that operators of all shapes and sizes are removing their barriers and co-operating much more closely for the greater good.’

 

Key findings

  • 14,750 settings, providing a total capacity of 872,500 places for children from birth to four.
  • 254,300 care staff employees.
  • £6.7 billion 2018/19 market value.
  • 609,948 full-time equivalent childcare places taken up in full daycare settings.
  • 378,800 children in a 30 hours place.
  • For-profit operators £5,500 million.
  • 52% of childcare employees are NWQ 3 qualified.
  • Not-for-profit operators £1,200m
  • £900m Voluntary
  • £300m School-based
  • Market growth 6.2 per cent

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