Nursery Management: Property - Moving in the right direction

Vibrant and fast-moving are terms being used to describe this year's property market and all the indications are that it will go down as another memorable year for sales.

As Courteney Donaldson, childcare director at Christie + Co, points out, 'Market confidence for high-quality businesses remains strong and demand from day nursery buyers continues to exceed supply in some prime locations.'

Bright Horizons has certainly enjoyed an eventful 2013. Its acquisition of the 64-strong chain kidsunlimited in April brought its UK presence to 203 sites.

'Bright Horizons' acquisition of kidsunlimited, on which we were delighted to advise, shows there is no let-up in activity just yet,' says Ms Donaldson.

Another interesting development in July was that Busy Bees put up a For Sale sign. But at Redwoods Dowling Kerr, sales director Lucie Wright says this came as no surprise.

'This supports the idea that the childcare sector is following suit with the care home sector, where the corporate and multiples are taking the growing market share,' she says.

For Amberglobe, the overall picture is one of solid growth. 'We have seen a steady increase in the number of childcare businesses being brought to the market and the number of new buyers registering,' says valuations director Nick Brown.

Hot spots

Christie + Co reports that Greater London and the South East are the primary drivers of demand, where fees can be up to three times higher than other areas.

This is supported by Mr Brown, who says, 'There is a fair spread of activity across the country, but once again London and the South East can be classed as hot spots.'

Meanwhile, Redwoods Dowling Kerr (RDK) reports that it is enjoying buoyancy throughout the whole of the UK.

Lucie Wright says, 'London will always appeal to buyers because of the higher fee levels, but the interest in this area is consistent with the past few years, and London has not experienced any "peak" that we would consider unusual.

'Rather, there appears to be no particular "hot" area and activity levels are strong nationwide. The statistics we published earlier this year showed that we sold equally throughout the UK in 2012 - with 36 per cent of all 2012 sales taking place in the south, 34 per cent in the north and 30 per cent in the Midlands.'

Funding eases

Mr Brown reports that prices have remained strong, measured against realistic asking prices.

'In some instances, we are experiencing full asking price offers and offers accepted in excess of the asking price. This is particularly true of nurseries inside the M25.'

At the same time, he is slightly concerned that prices might rise too much, too quickly.

'The main worry with some of the good news about stability and property price rises is that owners may feel they should be lifting their current asking prices.'

But it is certainly encouraging that over the past 18 months, buyer and investor confidence has strengthened, according to Ms Donaldson.

'Factors include the increasing availability of acquisition finance, business performance and increasing buoyancy and activity in transactions,' she says. 'Alongside single asset nursery and education business sales across the UK, we have witnessed significant deals and further consolidation across national day nursery portfolios.'

Exit prices achieved during 2013 are holding up well, as are high-quality single assets and portfolios. 'Indeed, there is an increasing alignment between vendors' and buyers'/investors' aspirations, driven by vendors' increased understanding and awareness of market conditions and components of deal structuring in the prevailing economic climate,' she says.

At RDK, Ms Wright reports that prices are holding up and are currently at sensible levels, as proven by the number of emerging buyers.

'We have comparable evidence with regards to nursery sales all across the UK, for freehold, leaseholds and occupation agreements,' she says. 'In fact, we are building relationships with several industry specialist valuers within the nursery sector, with an aim of ensuring that sale and valuation prices reflect current multiples and are not based on historic figures.

'Our aim is to be open in our approach to benefit the market and help nursery buyers and sellers achieve bank funding. We believe the information we hold to be industry- leading, as supported by the volume of nurseries we sell year on year, every year.'

Looking ahead

For RDK, activity levels this year are so far exceeding those of 2012.

'We are very confident that this will continue through the remaining portion of 2013,' says Ms Wright. 'The sheer volume of buyers supports our argument that the sector has never been so exciting, even during the highs of 2006 and 2007.

'This is further supported by the diversification of people approaching RDK, no longer just with regards to selling a nursery but now requiring us to work on their behalf in terms of acquisitions, growth strategies, exit planning and requests for land or closed property.'

She reports that RDK has recently sold properties in London with D1 (non-residential) planning use, and is also working with rising numbers of people who own D1 properties, such as doctor's surgeries, 'which we can put to existing operators on an agreed or turnkey offering,' she says.

Similarly, Ms Donaldson is expecting the pace to be sustained as the market heads towards the end of 2013.

'We will undoubtedly witness continued activity, with further acquisitions being concluded by new entrants to the early years and education sectors, both investors and first-time buyers, regional and national nursery groups.'

TWOS FREE ENTITLEMENT: THREAT OR OPPORTUNITY?

Will the free entitlement for two-year-olds provide a boost to business or is it something that should be approached with caution? It seems that property experts agree on the latter.

Christie + Co's Courteney Donaldson says, 'On the basis there is no shortfall between the rates awarded and cost of delivery, it is not expected that the market will be boosted as a consequence. Indeed, there could be an adverse effect on those businesses that solely command free entitlement-funded occupancy, in both buyer desirability and bank funding terms.'

Christie + Co has already responded to a few initial concerns raised by bankers in respect of their nursery business customers, who are increasingly catering solely for 'funded sessions'.

'For these businesses, potential risks could lie ahead and the sector should be mindful of the divergence witnessed in the residential care sector a number of years ago - resulting in a divide between private fee-paying and local authority-funded homes - and the prevailing value-differential achieved for each "type" of business,' she says.

At Redwoods Dowling Kerr, Lucie Wright believes that while the free entitlement is encouraging more children into settings, nurseries need to ensure the offer is viable for business.

'The choice needs to be taken as a business decision by the nursery, and not as a community decision. We would urge Government to assist nurseries in coming to a decision by better publicising the entitlement and how funding is structured.'

EARLY YEARS AND EDUCATION TIMELINE 2013

January

Bright Horizons Family Solutions shares jumped by more than 28 per cent in it first day of trading on the New York Stock Exchange, raising $222.2 million in an initial public offering of 10.1 million shares.

February

Treetops Nurseries completed its acquisition of Toybox Nurseries Limited. The Toybox portfolio comprised three nurseries.

March

Investec agreed a deal with Explore Learning, facilitating a £10 million facility to support ambitious expansion plans.

April

Bright Horizons Family Solutions acquired kidsunlimited, comprising 64 leasehold children's day nurseries for £45 million.

May

Nord Anglia Education acquires World Class Learning Group, a London-based international schools group.

June

August Equity invested in Minerva, four independent schools and five pre-schools and nurseries situated in Knightsbridge, Chelsea and Pimlico.

July

Busy Bees nursery chain went up for sale.

More information

• Christie + Co, www.christie.com

• Redwoods Dowling Kerr, www.redwoodsdk.com

• Amberglobe, www.amberglobe.co.uk