This year has seen major consolidation in the corporate nursery sector, and it looks as if the next 12 months will see plenty more acquisitions - albeit on a more regional basis.
Busy Bees, the UK's largest nursery provider, recently acquired the 71-strong chain Just Learning, bringing its total sites to 214. Back in May, Bright Horizons Family Solutions acquired all of Casterbridge Care Nurseries' 27 settings. Meanwhile, Co-operative Childcare acquired the Petit Enfant Group of four settings, taking its portfolio from six settings to 47 nurseries in 18 months, with two more in the pipeline, and two after-school clubs.
On the whole, there is no special reason for this burst of activity according to Courteney Donaldson, director and head of Childcare at Christie + Co. 'I think it has been driven by the motivations of the owners and investors,' she says. 'They all came together in the same year. A great deal of it is coincidence.
'Another factor is the emergence of what we call the "new normal" environment - the normal we have had for a couple of years. I am not saying we are out of the woods, but the sector is more stable than two or three years ago.'
She argues that strategy has been the driver for market activity, rather than a desire by any organisation to become the biggest nursery group. 'The big corporates have different motivations for why they want to grow,' she says. 'For some, it is to realise economies of scale, and for others it is to realise their business strategy.
'Whatever the motive, there has to be the right fit, the right quality, the right strategy. Busy Bees did not have a presence in Scotland, for example. Now, through the acquisition of the Just Learning group, including Careshare, it has.'
DONE DEALS
Location is key to whether a group is able to grow, says Mike Abbott, general manager at Co-operative Childcare. 'People have decided they can make some reasonable money, although it is not an easy time for nurseries in many locations. But in some locations, if you acquire strategically, the economic climate has the potential to be advantageous.'
He notes how some people may be cutting short their maternity leave or staying at work full-time rather than going part-time. 'It is location specific,' he says. 'We are seeing some good figures and occupancy is growing nicely.'
Ms Donaldson believes it is unlikely that the sector will see the same scale of activity among the big providers next year, not least because there are not many big deals left to do. 'If you look at the top ten groups, all the big deals have already been done,' she says. 'I guess the next volume sales will come with more regional transactions - the smaller groups of three to seven nurseries. We are seeing an increase in these preparing to come to market but not all for the same reasons. Maybe people are looking to retire, or are looking to move into another area in childcare or workforce development.'
RISING DEMAND
So has the activity this year affected smaller chains? Not at all, says Sian Nisbett, director of Dizzy Ducks. 'The big corporates do not impact on me. We compete on quality, not price. We do our own thing - and we do it really well.
'There are big corporates around my settings but they are busy and we are busy. It is heart-warming though that they are still acquiring properties and have confidence in the market. You hear about a lot of pre-schools closing or running at a loss. So it is good to hear more positive news.'
Early years businesses are now needed as much - or more - than ever, says Carole Edmond, managing director of Bright Horizons Family Solutions. 'We are seeing strong levels of demand in many of our nurseries. There are some areas that have been affected by unemployment and families relocating. We are seeing families look for more flexibility while not compromising on quality or the experience their child has. We are well placed to meet those parental expectations.'
Ms Edmond adds that she is also seeing more employers look to her group for employee benefits to meet family-friendly and flexible working practices such as back-up child and adult care. 'This is another area where government policy impacts our business,' she explains.
'There is increasing concern about how working carers can cope and how their employers can support them - more and more are caring for older relatives, and also for siblings and other loved ones who are in need of support.'
FUNDING ANXIETIES
Funding of the free entitlement is still an issue across the sector and the extension of the scheme to disadvantaged two-year-olds causes concern in part because uncertainties about finances make it difficult to plan and budget.
Ms Edmond says, 'We work with more than 60 local authorities, which each administer the free early education scheme individually. We work with some very efficient and effective authorities and they would be great centres of excellence in terms of ensuring the maximum funding is available to providers while reducing bureaucracy in the process.'
Mr Abbott fully supports funded places. 'It is absolutely right that everybody has access to nursery education,' he says. 'It is advantageous for the children. Our real issue is around the inconsistency of funding levels.'
He raised the issue at a consultation meeting with Deputy Prime Minister Nick Clegg earlier in the year. 'We have two nurseries in neighbouring London boroughs, Sutton and Croydon. Funding for the free entitlement is £3.80 in one and £6 in the other. They have identical costs. They both get London weighting and have the same wage costs. At the lower rate it is not a case that you cannot make money - you lose money.
'If the Government wants take-up of the two-year-old initiative, the funding has to be properly supported. We wish to be very much involved but for smaller operators it does not work economically. You cannot keep making a loss on funded places.
'Some of the concern is that we still do not know the number of children we will have in each setting so we cannot really plan or budget.'
Ms Nisbett says that while some providers struggle with the requirement to offer the free entitlement flexibly, she has not had any real problems. 'We have coped with the changes on flexibility and it is working for us,' she says. 'We take the two-year-olds but offer them the quieter times such as Thursday and Friday afternoons. We have been very flexible and have plugged the gaps.'
CASE STUDY: FACING CHALLENGES IN THE YEAR AHEAD
Andrew Clifford, managing director of nine-setting organisation First Class Childcare Group, believes that the sector faces a diverse range of challenges in the year ahead and that the two main themes of 2012 will continue.
'Firstly, many settings will continue to see challenging occupancy levels and an unprecedented "churn" within those places, creating the need for more flexibility and a wider understanding of parents' changing needs,' he says.
'We are highly committed to the "quality agenda" and continue to fully support our practitioners and nursery leaders through their CPD, from in-house workshops to Early Years Professional Status. By the end of 2013, we will have eight EYPs within the group and graduate leadership across all settings, aiming for outstanding outcomes for all children.
'As a result of the local authority cuts to early years, we have appointed a training and development manager from within the group to lead our CPD programme.
'This commitment is against a difficult backdrop of challenging financial restraints, including increasing business rates and utilities costs. We work hard to seek appeals to ratings where possible and also with our utilities broker to drive a hard bargain.
'Furthermore, we have the unresolved issues within three and four-year-old funding of the free entitlement, with huge variances in both funding levels and compliance requirements across the five local authorities we deal with. We are working hard to match our offer for these places with "gaps" in our occupancy and maximising efficiency of staffing levels.
'Having piloted the two-year-old offer in Lancashire, it is evident that further demands on time and resources will inevitably be created by the roll-out of this offer with extended multi-agency working and parental support a prominent feature.
'I think doubts exist about the Government's ability to deliver on the two-year-old £100m capital programme, as local authorities are unclear on how this will be allocated. Our funded two-year-olds are currently filling places that may have been unused anyway.
'These challenges are set to continue, but we remain upbeat, meet them head-on and continue to monitor and review our operations frequently to ensure the balance of quality and sustainability.'
