Sophie Willcox, director – Childcare & Education at Christie & Co, shares her insight into the day nursery market in the South of England

What’s selling?

In the day nursery market in the South of England, we’ve seen really strong demand for both leasehold and freehold nurseries, typically those that are highly profitable with capacity for 55+ children. Over the years, we have seen more and more opportunities whereby the owners retain the freehold and create a lease for the buyer. The market for leaseholds has proven to be very strong in the South as they give the owner the added benefit of a yearly income from the rent post-sale which is a great option for many.

Mid- to low-level stock is generally taking longer to sell, as buyers typically seek high-quality, well-performing businesses with a stable team in place. However, there is quite an appetite for smaller settings and preschools which are priced around the £50,000 to £100,000 mark. At this level, a new owner can develop, refurbish, and build on the underlying principles of the business with the hope of driving forward occupancy and revenues. This price point also makes the opportunity accessible to first-time buyers and gives them their first step into the sector.

Where are buyers looking?

London has always been a sweet spot, but we are now also seeing particularly strong demand for settings in other areas such as Hampshire, Sussex, and Surrey, each with a large corporate presence and plenty of regional operators and buyers.

As reported in our Business Outlook 2023 report, last year, operators typically looked further afield for their ideal setting – 62% bought within 50 miles of their current operation/residences, and approximately a third bought within 30 miles of existing hubs. Corporates or groups with a national presence took that further, with an increasing amount purchasing settings over 50 miles away.

That goes to show that, if a setting ticks the right boxes, then buyers are willing to look that bit further out.

Who’s buying?

In 2022, I sold several businesses whose owners I have known for many years. They had no plans to sell imminently but we kept in touch and discussed the market and their short- and long-term plans and, last year, several of them decided to make the most of the buoyant market and sell their businesses. Creating these relationships allowed for me to gain an in-depth understanding of the settings which is paramount to achieving the best result we can when the time is right to sell.

We’re also seeing more and more corporate buyers pairing with investors, whereby the investor buys the property, and the operator buys the lease from them, which can create a successful, lucrative partnership.

There has also been healthy demand for smaller settings from both new market entrants and local operators who already own one or two settings, know the area well, and are looking to add to their existing offering. Banks are usually very supportive of helping these operators grow, and throughout last year, we successfully completed on several of these opportunities.

Challenges in the region

As always, issues regarding leases, low occupancy, low fees and therefore low profit, affect the demand we receive for certain opportunities. Those that are struggling with their occupancy and, indeed, staffing which impacts how many children can safely be cared for, will, in turn, find profitability a challenge, and it is here that pricing needs to be considered carefully.

As is the case for businesses up and down the country, staffing is a huge issue amongst all settings regardless of size and quality.

I am also speaking with an increasing number of owners who have recently been downgraded by Ofsted. One of the reasons, I’m hearing, is that some operators, as they struggle with staffing numbers, have had new joiners start on the day of the inspection, just as they are integrating them into the team. For those that have been downgraded to inadequate, this proposes a dilemma whereby they wait six months to be reinspected or they come to the market with this grading which is often not what an owner wants to do.

Of course, the impact of being downgraded varies from nursery to nursery, as does its consequential knock-on effect, with some resulting in minimal impact on occupancy and financial performance, whereas some are experiencing a significant drop in occupancy which is hugely challenging for any business.

The sale of Hove Village Day Nurseries – where high demand makes for competitive pricing.

Hove Village Day Nurseries is a successful nursery group which comprises three settings across Brighton and Hove that care for up to 237 children aged 12 weeks to five-years.

The trio of nurseries received a number of quality offers and, through competitive tension, we were able to achieve in excess of the asking price. Dukes Education were a great fit for the group due to their other setting, Reflections in Worthing, which was a deciding factor for the owners when making their choice amongst the bids. This is an example of the high demand in the South for these high-quality settings amongst corporate and regional buyers. Those businesses which have strong occupancy, a great staff team and in turn are very profitable have always been and will continue to be a sweet spot for buyers.