A massive 72 nursery deals have been reported in the UK press in 2019. The larger operators dominated the headlines by hoovering up smaller settings as part of their aggressive expansion plans – a trend that we have seen emerging over the past five years. However, there was still space for a number of first-time buyers (five reported deals) and also an increase in the number of new settings being built by existing operators (six deals reported).
Big foreign players have had an interest in the UK for some time now, but have often failed in their attempts to gain a foothold. We feel that this has regularly been down to the competitive market driving up prices beyond that which they are willing to pay. However, in 2019, Icelandic group Hjalli Model and French giant La Maison Bleue acquired their first UK settings. They both follow Les Petits Chaperons Rouges, which was the first European operator to enter the UK in 2017 with its acquisition of the 16-setting group Magic Nurseries. Perhaps this latest activity signals an acceptance by these foreign nursery groups that premium prices are worth paying in the UK.
In other international activity, UK-based Busy Bees made acquisitions in both the US and Italy, and Childbase Partnership expanded into China.
Number of deals
- The map shows the 52 deals where the nursery location was reported.
- London and the North West led the way with eight deals each.
- There was also much more activity in Scotland, with six reported deals.
Increase on last year
Our 2019 market roundup shows a 26 per cent increase in activity on 2017 (our last roundup, with 57 deals). In fact, the number of deals has been largely stable over the past three years, as expanding groups were not as good as they are now in reporting their acquisitions.
Previous years have seen groups focus on acquisitions of nursery chains with four-plus settings. However, after five years of consolidation, the larger groups are also now turning their attention to quality single-setting bolt-ons. While the UK nursery market is still hugely fragmented, it feels as though supply of quality acquisition targets has plateaued at present.
Busiest and quietest months
May was the busiest month with ten reported deals, closely followed by February and August with nine each.
November was the quietest with two.
Deals of the year
In February, La Maison Bleue’s first-ever UK deal saw it acquire The Old Station Nursery Group, an operator of nine settings across Oxfordshire, Gloucestershire and Warwickshire.
This acquisition was a significant step for La Maison Bleue, and demonstrated its strong ambition to become a leading player in the UK and Europe, backed by investors TowerBrook and Bpifrance. We expect to see much more from them in 2020.
Special mention also goes to Busy Bees for its first foray into America and Italy. In September, the group announced its acquisition of Educational Playcare, which operates 19 settings in the state of Connecticut, and bilingual childcare provider Doremi’s seven settings across Milan. This marks a big step for Busy Bees and could be the start of some serious expansion in these two huge and previously untapped international markets.
Provider of the year
Now the fourth-largest nursery group in the country, Just Childcare saw exceptional growth in 2019, with six reported deals. Its latest acquisition of Safehands Day Nursery in November takes it to 60 settings and 4,480 childcare places.
Kids Planet comes second with five reported deals.
Investor profile
TowerBrook is an international private-equity firm with offices in London, New York, Madrid and Munich. It has particular expertise in healthcare, financial services, retail and telecommunications. One of its most famous previous investments was in designer footwear company Jimmy Choo.
Bpifrance is a French investment bank that regularly partners with other private-equity firms to take a minority interest in investee companies. It has a particular focus on supporting French companies, and has a specific fund to be used for overseas investments (which is where the funds are likely to have come from to support La Maison Bleue).
Outlook for 2020
Sustained growth in the sector throughout 2020 is on the cards for the big groups. Bertram, ICP, Just Childcare, Busy Bees, Kindred Education, Kids Planet and Storal Learning have all made it clear that they have both the appetite and the funds to grow further.
We are also anticipating these groups to continue exploring other ancillary opportunities in the sector – that is, businesses such as recruitment, training, back-up care and apprenticeships, rather than just nurseries. Bright Horizons’ acquisition of My Family Care (which is a nanny and childcare recruitment agency and includes the Tinies nannies franchise) could be an early indicator of this trend.
We predict there will be more inward investment into the UK from Europe, the US and the Far East.
Brexit and funding
So far, the uncertainty around Brexit doesn’t seem to have affected deal activity. However, Brexit is a concern for all UK businesses – and any resulting economic downturn will impact everyone.
Perversely, any economic downturn could actually see more foreign nursery players make acquisitions. This is because a drop in the value of sterling (likely if there is a recession) will mean that UK nurseries will become cheaper to acquire for those that are using stronger foreign currencies.
Generally, there will also be concern among nursery providers as to the impact Brexit will have on the use of overseas staff. The sector is already suffering from a skills shortage, so any new restrictions on the recruitment of European staff could be a major problem.
Meanwhile, nursery closures rattled the sector last year, with 2019 seeing closures particularly in more deprived areas. One example is the Great Yarmouth Community Trust, which ran eight nurseries, and went into liquidation after running into financial difficulties. The charity concentrated on areas of Great Yarmouth that are in the top quarter of the national deprivation leagues.
Government funding has been a hot topic for some time and, following December’s General Election, a subsequent Budget announcement is looming. Regardless of political allegiances, we hope that funding of early years education is seen as a priority for the new Government.
