Kush Birdi, managing partner of Birdi & Co Solicitors, shares his essential insights to completing your nursery acquisitions in 2024

The childcare sector has recently found itself at the centre of a heated debate, which has been primarily triggered by the introduction (and extension) of the ‘free childcare plan’. Proponents argue that the plan is a necessary step towards alleviating the financial burden on parents and promoting early childhood education.

However, critics raise concerns about the plan’s feasibility and potential strain on resources, fearing it could lead to challenges in maintaining quality standards and staff remuneration, given the already tight margins in the sector. The controversy highlights the complex balance between accessibility, quality and sustainability of childcare provision.

All is not doom and gloom because, if history is anything to go by, the childcare sector is remarkably resilient. The sector’s adaptability is why I believe that confidence will remain high and that M&A activity will be strong in 2024.

Birdi & Co is a specialist legal advisor in the childcare sector and, in this article, I will provide you with my essential insights to completing your acquisitions this year.

Locating the ideal nursery for acquisition

When looking for a day nursery to purchase, it’s important to take a number of key factors into consideration. Location is an important aspect, as you will want to find a setting that is easily accessible and in a good neighbourhood.

Capacity is also important, as you will want to make sure the day nursery can comfortably accommodate the number of children you are looking for. Additionally, you will want to think about the age range of the children that the day nursery serves, to ensure it aligns with your own needs and the needs of the local community.

One way to start your search is by looking at listings of available nurseries, either online or through an agent or broker. Visiting existing day nurseries in the area can also give you a sense of what you’re looking for and what kind of operations you would like to emulate. Once you’ve found a day nursery that you’re interested in, it’s important to understand the legal process involved, including the due diligence process and negotiating the terms of the acquisition.

It’s also essential to plan for the transition period leading up to the Ofsted inspection and to have a plan for growing the business.

The legal journey of acquiring a nursery

Once you’ve found a nursery that you’re interested in purchasing, you will need to make an offer to buy it and, hopefully, the seller will accept – at this stage you should have your solicitors lined up and confirm their appointment.

It’s important to consult with solicitors that are well-versed in the acquisition of day nurseries.
The legal process of buying a day nursery includes several steps, including:

• Heads of terms
  The first step is to agree the headline terms of the purchase, including the price, timetable, conditions (for example, is a new lease required?) and much more
• Due diligence and disclosure
  The next step is due diligence during which your advisors will undertake an investigation process by raising enquiries, inspecting the documents disclosed and ultimately report to you with their findings.
  This is an important step because it will identify potential red flags before buying the nursery
• Purchase agreement
  Once the preliminary round of due diligence is advanced, the purchase agreement will be negotiated which tends to go back and forth several times. The legal documents will be detailed and involve the negotiation of items including warranties and indemnities to be given by the seller.
  Your advisors will negotiate the agreement on your behalf
• Preparing for completion
  Your advisors will make sure everything is ready to go. At this stage, you might notice your solicitors becoming extra busy as they are closely checking that you are fully protected and that nothing major is missing. The completion arrangements will also be agreed between the solicitors at this point – you may not be involved much in this process but there is a lot going on behind the scenes
• Signing and completion
  Your solicitors will ensure that you have signed and returned all necessary paperwork, collect the completion sums from you and execute the purchase on your behalf. The completion monies will be paid to the seller’s solicitors, and you will take ownership of your new day nursery – congratulations
• Post-completion
  After completion, you will lodge the necessary applications with Ofsted. Your solicitors will make the necessary filings at Companies House and/or HM Land Registry (if applicable). If completion accounts form part of the deal, they will start to be prepared and finalised to arrive at the final price.

FAQs

We have used our experience to draw up answers to the questions we get asked most frequently:

Do I need to instruct a specialist solicitor?

It is crucial to work with a solicitor that is well-versed in nursery acquisitions. A specialist – such as Birdi & Co – will be familiar with the legal issues that commonly crop up and how to resolve them in a practical way. A specialist will anticipate these and factor them into the deal structure from the outset.
Some examples include:

• Legal protection with Ofsted transitional arrangements
• Informing staff and negotiating usual handover arrangements
• How to deal with financial adjustments to be made, for example, in relation to cash at bank or invoicing at completion.

At what stage should I appoint a solicitor?

Generally speaking, we recommend that solicitors are appointed as soon as a deal is agreed in principle and before the heads of terms are negotiated.

Sometimes we are contacted and appointed after the heads of terms have been signed, which can present difficulties if they are unfavourable to our client or if there are material omissions.

What is the difference between a share purchase and an asset purchase?

A share purchase is where you step into the shoes of the seller as the owner and manager of a limited company, and will take on all the assets and liabilities (whether known or unknown). This usually requires a more extensive due diligence process.

An asset purchase allows you to ‘cherry-pick’ what items you will acquire from the business, which usually includes items like goodwill, office equipment and children’s toys, the nursery premises etc. You, as the buyer, will not generally acquire the liabilities of the business, other than in respect of employees (who will automatically transfer to the buyer by law) and specified contracts being acquired.

How long with the legal process take?

Ordinarily, you should allow for two-to-three months from the agreement of heads of terms to reach completion of your purchase. However, every purchase is different, and the overall timetable can be less or more depending on various factors, including the complexity of the deal, the expertise of the parties and their solicitors, and how long it could take to negotiate with the landlord for a new lease (if needed).

We are currently seeing more extended timetables due to legal issues cropping up regularly (especially when it comes to the property or lease aspects of the deal) and increased due diligence by lenders and investors.

When can the staff be informed about the change of ownership?

There is no perfect answer and the situation needs to be managed carefully. The seller may not feel comfortable telling the staff until a few days before or even on the day of completion.

However, informing the staff earlier than later also avoids the risk of them finding out by accident and then having to manage that process instead, together with the questions that will inevitably follow.
Sometimes owners are happy to inform the nursery manager or senior management team prior to the sale taking place, with the remainder of staff being informed on completion.

Post-acquisition support

Congratulations on your nursery acquisition.

As the new owner, you are now in charge of a wonderful and nurturing environment for children, and post-acquisition legal support is an important part of ensuring its continued success.
One of the first steps you should consider taking is to book in an annual health check with us. This will ensure that – by the time you are all settled in – you are ready to tie up any loose ends that were discovered during the transition phase.

In addition to health checks, we regularly support nursery owners with a range of services, including:

Reviewing your terms and conditions to check that they remain compliant and up to date.

• Drafting partnership or shareholders’ agreement that you have been meaning to get done, or to review the existing one to check it remains fit-for-purpose
• Reviewing your GDPR/privacy documents to check that they remain compliant
• Checking the employment contracts and handbook/policies for relevant updates
• Monitoring your lease (if leasehold) to check that your business is protected in all economic situations, or advising on options for moving premises should that become a necessity in the future
• Applying to trademark your trading names.

With the peace of mind of having the right legal guidance and protection in place, you can focus on what you do best – providing a safe and stimulating environment for the children in your care.

Please contact me if you would like a confidential chat about your nursery:
Kush Birdi, managing partner
Birdi & Co Solicitors
(web): birdilaw.com
(phone): 07745 525 837
(email): [email protected]