The composition of the childcare sector has been undergoing a huge shift for the past 20 years. As more women entered the workforce, demand for sessional day care dropped and full daycare and wraparound provision have become the norm.
What was once a sector dominated by single sites and just a handful of small chains (around ten in the mid-90s) is rapidly becoming less fragmented. In 2016, single operators made up 78 per cent of all ‘non-domestic’ providers, according to Department for Education data; by 2019, this was 57 per cent (the big chains with more than 20 settings made up nine per cent, according to estimates from the latest About Early Years survey using official data).
Consolidation was already a hot topic for the sector before Covid-19, and the pandemic is predicted to further accelerate this trend. With Government advice to work from home, plus uncertainty from some parents about the safety of sending children into nursery, occupancy was lagging at around 62 per cent, according to figures from 12 September, according to Ceeda.
Helen Wong, a nursery transactions specialist at law firm Charles Russell Speechlys, reports a 50 per cent uptick in sales and acquisitions enquiries since lockdown ended and predicts ‘a lot of consolidation’.
‘Providers have suffered significant financial pressures and continue to do so,’ she says, pointing out that job insecurity is driving some parents away from childcare. ‘As the latest Government recommendation is to work from home, this will further impact occupancy in nurseries, resulting in many nurseries operating at a loss.
‘As a consequence, I am seeing an increased number of instructions to advise nurseries selling up.’
She adds, ‘Separately, I am also being approached by a number of acquirers, who are taking this opportunity of increased stock on the market to expand their portfolios.’
Ofsted data showing an increase in the number of total nursery places against the wider bleak backdrop is investor-driven, she claims, adding, ‘There is a lot of private equity coming into the space and acquiring, extending sites and developing bespoke sites to make bigger nurseries.
‘They usually seek to build nurseries with 100-plus places and acquire existing nurseries with a minimum of 60 places.’
Jennifer Scott, senior healthcare banking consultant with Lloyds Banking Group, has described this year’s slowdown as a ‘blip’.
Ms Scott says, ‘Last year our lending grew 16 per cent year on year. There was a very strong demand before Covid and we expect to see that return.
‘It’s a very highly regulated sector. Actually, from the bank’s perspective, that gives the banks a lot of comfort. It ensures settings are well run.’
MASS CLOSURES?
Some 81 per cent of PVI settings were open to families at the beginning of the autumn term, according to Ceeda’s Covid Tracker.
It is too early to speak of mass closures, with Ceeda research suggesting that just one per cent of settings that remained closed at the start of the autumn term have done so permanently.
However, with the end of furlough coming just as a second wave of infections sets in across the country, more businesses will soon be making tough decisions about their futures.
Research suggests that by early next year, as many as a quarter of PVI settings could cease operating for good.
‘When furlough ends, we may see a steady rate of closures,’ says Sarah Steel, chief executive of Old Station Nursery group.
Ms Steel believes particularly vulnerable settings are pack-up and play pre-schools, single sites, and even small groups. Her business, however, which was bought by La Maison Bleue, one of France’s largest nursery groups, in February last year, has since expanded to 19 settings, and is now ‘back on the acquisitions trail’, she says.
It is not alone. Fennies nursery group, which currently has 11 sites around Surrey, Kent and London, recently announced plans to double in size by 2023, while Welcome Nurseries, now with 13 settings, is one of the fastest-growing groups in the UK after opening its first site in June last year.
The most vulnerable businesses are those serving the least well-off parents. A third of PVI settings are predicted to close in the nation’s most deprived areas, according to a report by social mobility charity The Sutton Trust.
When the pandemic first hit, settings in disadvantaged local authority areas were the most likely to remain open – 36 per cent, compared with 30 per cent in the least deprived areas – yet they are now the most threatened with permanent closure.
According to The Sutton Trust, the paradox is explained by local-authority-maintained nurseries in primary schools, which serve some of the most disadvantaged areas, continuing to receive funding regardless of periods of closure.
‘Maintained nursery schools and classes, many of which support disadvantaged communities, stayed open and have played a strong role in creating local support networks,’ says the trust’s report.
DISADVANTAGED AREAS
None of Ms Wong’s purchasing enquiries related to settings in disadvantaged areas, she confirms.
Cary Rankin, chief executive of Bertram, which runs 42 settings, raises the concern that even the largest chains, like his, may need to cut their losses in unprofitable locations.
While his job is to be ‘constantly thinking’ about how to support children, families and staff across the Bertram estates, Mr Rankin says there are ‘of course some sites where we will incur considerable losses and where difficult decisions will need to be made, unless bookings pick up or Government support improves’.
He adds, ‘Being a larger group does allow for risk to be spread; however, that does not give us the capability of carrying risk for extended periods of time.’
With the investor market therefore highly unlikely to rescue such settings, commentators are unanimous in their view that emergency state measures are needed. This is both to protect the businesses and to prevent children from lower-income families from missing out on early education.
How any intervention will play out in future is not straightforward: families at the lower end of the income scale are the most likely to keep their children out of childcare, Ms Wong says. Citing The Sutton Trust’s July Impact Brief, she says, ‘Despite the local support networks remaining open, these parents were most likely to be impacted by redundancies, reduced working hours or the end of furlough and, as a consequence, many vulnerable children and disadvantaged families have not attended nursery and dropped off the radar.
‘The real tragedy is that a third of these settings in deprived areas will probably not operate next year (compared with 25 per cent nationally) and many of these sites go above and beyond to support local families.’
Neil Leitch, chief executive of the Early Years Alliance, which carried out the polling that informed The Sutton Trust analysis, is particularly concerned for such provision.
‘With such providers more likely to rely on the funded entitlement, which has been so severely underfunded for many years now, it’s no surprise that it is these settings that are the most financially vulnerable from the impact of the pandemic,’ he says.
A number of sector organisations are urging the Government to intervene with emergency and long-term financial support.
The Sutton Trust is calling for an £88 million Covid-19 recovery package to include transition funding to cover providers’ cost of reopening below capacity, with priority given to those in disadvantaged areas.
Childminders ‘are being sidelined’
Childminders constitute 54 per cent of childcare providers, providing 14 per cent of places. Sarah Neville, who runs Knutsford Childminding, says they have continued to offer flexible services ‘throughout the chaos’ caused by Covid-19.
However, Ms Neville is concerned that a ‘catastrophic impact’ is being inflicted on the childminding sector, ‘with thousands of providers reporting financial concerns’ that may leave them unable to continue.
A major issue is occupancy, she says, adding that some schools are making the problem worse by continuing to ban childminders from collecting children.
In addition, some group settings are ‘forcing parents to make a choice over which setting their child attends, and some schools are promoting their own heavily subsidised out-of-school clubs as “safer” choices to parents’, adds Ms Neville.
She calls for the sector to come together to prevent further dwindling of numbers and maintain parental choice into the future.
‘Childminders and the entire early years sector need to work together to request interim funding – as local lockdowns become the norm and more providers struggle to stay afloat, this is one way the Government can support us,’ says Ms Neville.
‘We also need more engagement from the Department for Education – I note that we haven’t been invited by DfE to a meeting to discuss the childminding sector for two months now, and many feel nobody is listening to our concerns.’
In response, the DfE praised the efforts of the sector in enabling 619,000 children to benefit from an early education place this term.
A spokesman added, ‘This important sector has received significant financial support over the past months to provide stability and reassurance, and we continue to provide extra security to nurseries and childminders that are open by “block-buying” childcare places for the rest of this year at the level we would have funded before coronavirus – regardless of how many children are attending.
‘Providers will benefit from planned £3.6 billion funding in 2020-21 for free early education and childcare places. From next year we will also be investing £1 billion to create more, affordable wraparound and holiday childcare places.’
