Further consolidation expected in nursery sector

Further consolidation expected in nursery sector following latest acquisition by Kids Planet

The children’s day nursery sector has shown strong levels of M&A activity in recent years and the announcement last week that nursery group Kids Planet has acquired North West rival Kids Allowed is likely to be the first of many such transactions in the sector over the coming year.

The latest acquisition by the BGF backed Kids Planet will add another 8 nurseries across Manchester and Cheshire, along with around £11 million additional turnover, and make it the UK’s third largest nursery group, with 52 nurseries in the North West and Midlands, providing care to some 6,000 children.

Kids Planet received an initial investment of £10 million from BGF in 2016, when it had 17 nurseries. It has since trebled its footprint, with BGF’s total investment now at £26m, and the business anticipates more acquisitions in future. Although rapidly growing it remains some way behind the two largest groups in the market, Busy Bees (380 nurseries) and Bright Horizons (310 nurseries).

In the UK, the pre-primary education industry is estimated to be worth approximately £3.6bn with further growth forecast in the sector over the coming years. High employment levels, the increased workforce participation rate of women with dependent children, demographic changes and higher levels of government subsidy of early years education has resulted in increased demand for childcare services amongst parents.

The competitive landscape in the day nursery sector remains highly fragmented, with an estimated 80% of childcare settings still owned by independent operators. As a result, this provides an opportunity for further market consolidation and for larger groups to acquire smaller operators.

There appears to be a healthy appetite across the buyer spectrum – from single site nurseries being bought by small groups, to smaller groups being acquired by large national groups, as well as increasing interest from private equity investors and overseas buyers.

High quality nursery businesses continue to be very desirable to groups looking to acquire. There are several key factors that make a day nursery particularly attractive to potential buyers, these are; good visibility of future income streams, reasonable certainty around occupancy levels, the ability to benefit from cost saving synergies and a solid asset base.

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