The greatest threat to nurseries is Government underfunding, not 'risky, financial operating models'

The report states -  Smaller nurseries in England are being bought up by profit-focused companies, without necessarily creating more places or investing more in staff.

Profit focused companies’, i.e ECEC [early care and education] providers focused on operating in a commercial manner to ensure the financial sustainability of setting, thus striving to deliver a surplus to ensure that they can reinvest to deliver high-quality childcare, will frequently appraise mergers and acquisitions with the creation of developing new places in mind.

For a variety of reasons some nurseries choose to trade with an "effective operating capacity" which may be lower than the permitted operating capacity. Potential acquirers will have this in mind when buying nursery businesses and in these cases frequently we see purchasers investing thereafter to facilitate any available increase in capacity. In relation to investing more in staff, so many ECEC providers that I work with daily, be they for-profit or not-for-profit, truly recognise the importance of investing in, renumerating, rewarding and professionalising the perception of the UK’s early years workforce – The key issue here which limits the ability for higher levels of investment is the level of chronic underfunding from government funding that ECEC providers receive.

On claims that large private-for-profit companies are heavily indebted, and their risky financial operating models could threaten the provision of nursery places.

I would suggest that rather than 'risky financial operating models' presenting a threat to the provision of nursery places, the greatest threat is chronic government underfunding as mentioned previously. Nurseries in deprived areas face the greatest challenges, risks for these settings are heightened when revenues are derived solely from the delivery of Government funded places. Sure Start, Neighbourhood Nurseries and children’s centres were developed at a significant cost to the taxpayer but, as we’ve seen time and time again, even those retained and operated by local authorities just couldn’t make it work.

With levels of DfE [Department for Education] funding often being inadequate and hourly rates insufficient for some settings to meet the cost of service delivery, we have seen an increase in buyers refining their investment and acquisition thesis – some steer clear of looking at acquisition opportunities in specific local authority areas because they can’t deliver a sustainable high-quality service on the rate awarded.

Increasingly there has also been a focus on the levels on revenue derived by funded places – a nursery that receives 70 per cent of its income thought privately funded sources is likely to have a greater chance of being financially sustainable compared to a setting that receives 70 per cent of its income via local authority funded places.

The report authors say that the nursery sector is at threat of being damaged in the same way the adult social care sector has been, with care home providers having to close down at short notice.

Christie & Co is the most active business property advisor, valuer and agent in both the UK’s children's day nursery and adult social care sectors. There are many comparisons between these sectors: They are both highly regulated, they serve potentially those most vulnerable in our society - our youngest and our oldest citizens - with care, empathy and quality being forefront of mind on a daily basis. This has been particularly evidenced during the COVID-19 pandemic when operators across both the nursery and social care sectors have had to deal with challenging of conditions, during the most turbulent of times.

While there are similarities across both the nursery and adult social care sectors there are also distinct differences in terms of market structures, nature and composition of assets and the evolution of the acquisition, mergers, and debt markets. During 2021, we did see an increase in day nurseries closing at short notice. For many owners, the difficult decision to close was largely, in part, due to financial losses arising from the delivery of ‘funded places’ with the level of funding received from the Government not being aligned to the actual costs incurred to deliver the service.

On claims that large private-for-profit childcare companies are not transparent about how they spend the public money they receive. 

'While such information may not be published, nor openly available in the public domain, a number of "private-for-profit" childcare companies have been incredibly transparent in regular meetings that they have had with both DfE [Department for Education] and HM Treasury about how they spend the funded hours income and subsidies they receive. Their openness and sharing of this information has been forthcoming in evidencing to Government that the funding levels awarded fall short in differing degrees across different local authorities in England.

The report states that -  Private firms charge high prices to parents, relative to other OECD countries, while staff qualifications are among the lowest.

Day nurseries can’t be appraised on a "cookie cutter" basis. Like the children they care for, nurture, and educate, every nursery is unique. One size does not fit all, and each setting will have different fixed operational costs that need to be met ahead of surplus even being achieved.

This results in different prices needing to be achieved in order for operational costs to be met and for settings to be sustainable – that sustainability ensures longevity and negates potential closure risk. Nurseries in other OECD countries will operate in their own unique manner; different ratios, different types and levels of funding, different regulatory environments in relation to workforce qualifications.