RDK reports buoyant sales market for childcare settings

Andrew K Steen, sales and marketing director at Redwoods Dowling Kerr, a UK Childcare and Healthcare business broker, answers our questions on the sales environment for early-years settings and how RDK itself has adapted throughout the pandemic.

How was the market impacted by the pandemic as it progressed?

When the government forced childcare centres to close as the pandemic reached an initial peak during Easter 2020 the focus was on limiting the fallout from the closure of nursery settings.

During the lockdown period we were able to progress our deal pipelines and agree new deals which resulted in new day nursery sales completing once lockdown ended. As the summer progressed, deal activity increased with a high number concluding in October and November. Whilst some industry commentators speculated that prices would fall, at RDK we did not see evidence of this taking place and our transactions concluded with deal prices in and around the pre-COVID multiples.

How did RDK adapt to the challenges of 2020 and the market conditions?

We took the decision that our best path through the crisis was to focus our activities on supporting clients and increasing our efforts progressing deals and generating interest through the lockdown period.

Therefore, we invested in our staff and technology whilst we prioritised our clients and their transactions to ensure that they were best placed to agree deals and close their transactions once the restrictions eased.

One of our key actions was to resist the mass furlough option and maintain our clients and buyers’ services. We introduced virtual business appraisals for potential clients who wished to sell to ensure we were still able to assist nursery owners with their exit plans.

The team at RDK felt the best way we could help our clients was to continue to pursue the sale they desired and to be available for support and advise should they require it.

In addition, we also expanded our communication strategy with the launch of the Redwoods Dowling Kerr webinar series. We recognised early on that the childcare sector wanted support on a range of topics from the government schemes available, to reducing their overheads and to hearing what other providers were doing.

We also launched an energy saving review service aimed at reducing operating costs. During the period May – December 2020 we helped 20 companies reduce costs and delivered in excess of £100k per annum of energy savings to nursery owners who chose to have their existing energy policies.

In 2020 we completed a total of 43 nursery deals which comprised of 60 settings, a testament to the efforts of our team who have been fantastic throughout these unprecedented times.

Do you foresee any significant shifts in the patterns and trends in 2021?

The childcare sector is resilient and remains a market where there are opportunities. We expect demand for childcare provision to increase and occupancy rates to strengthen during 2021. Demand for new nursery acquisitions remains strong with an increasing mix of corporate, regional groups and new entrants registering their interest to acquire in 2021. In January we completed a month-record 10-day nursery transactions and agreed 23 new sales.

If anyone reading this is looking to buy or sell, how can they engage with you?
We remain fully operational during the new lockdown restrictions and we are able to offer both face-to-face and virtual video appointments to comply with social distancing guidelines which can be conducted via a secure, confidential video conferencing facility. We can also update clients on the current market and options available to them. Our points of contact remain the same and we are more than happy to help anyone during these difficult times.

Are there any trends and patterns emerging that the sector should be aware of? Eg. Types of sellers, buyers, geographical differences

Despite the significant consolidation which has taken place during the past few years, the UK day nursery sector is highly fragmented. There are opportunities for large groups to consolidate, for regional groups to expand and for single settings to increase their footprint in their local area. At Redwoods Dowling Kerr we work with all types of buyers in the sector, from first-time buyers to international entrants seeking to commence a buy-and-build strategy.

Many different strategies are in play at any one time and whilst the Covid-19 pandemic has caused some buyers to place their strategies on hold there are plenty of active buyers who are seeking to acquire high quality nursery groups and single setting opportunities

How much of a challenge is Brexit likely to be?

Over the past few years there have been multiple nurseries in city locations who have been impacted by European works transferring out of the UK. Fortunately, these settings tend to be in high demand areas which has enabled them to replace the childcare places relatively quickly.

In January, RDK published its 2021 Global Childcare Property Report. In this year’s edition, Paul Miller, chief executive officer at RDK, outlines his expectations for the year ahead and Andrew K Steen highlights the importance of buyer intelligence and how his business incorporates bespoke buyer processes within its intelligence hub to complete sales for clients.

For an independent perspective, Josh O’Neil, editor of Education Investor Global gave his insight on the short-term future impact in the childcare market. He said that fundamental changes to demand for childcare provision are tricky to forecast accurately but added: “Shifts in working patterns ushered in by the pandemic may be permanent. Unemployment will almost certainly rise further. Both of these factors could alter demand levels for some time – and operators in certain regions will feel the pinch more than others. Bright Horizons, the UK’s second-largest nursery operator, has said that occupation will not recover to pre-pandemic levels until the tail end of next year.

“Many mom-and-pop providers will be unable to survive this long. They will be pushed towards insolvency or into the hands of larger, private equity-backed players, which, thanks to ultra-low interest rates, have continued access to cheap debt – an integral component in leveraged buyouts,” added Josh.

“Private equity investors will always see opportunity amid economic uncertainty. It is what they are paid to do. Armed with a mandate to acquire and hundreds of millions of pounds in the bank, private equity houses can be expected to continue to absorb both cash-strapped and financially healthy childcare providers next year and beyond, expanding their footprints in the UK market.”

You can view a copy of the 2021 Global Childcare Property Report by clicking here.

The information in this article is provided by Redwoods Dowling Kerr and these views do not represent Morton Michel.