Foreign investors are increasingly seeking out the ‘gold standard’ of British nurseries, property experts have said.
Speaking at the launch of Christie & Co’s annual business outlook report, head of childcare Courteney Donaldson said in rapidly developing countries such as China, property companies are also looking to partner with UK nursery operators seeking to expand abroad.
‘The world looks to the UK as a global standard of early years education,’ she said. ‘We’ve had interest from every continent apart from Antarctica and, increasingly with Brexit, foreign currency is gaining value against sterling, [making investment in the UK more appealing],’ she said.
She added that investors range from ‘small investment houses that have £2-3 million to spend to very established investors that have hundreds of millions’.
Buyers are looking at ‘all sorts’ of options, from small chains to the big players. ‘There have been multiple overseas parties that have actively pursued portfolio [nursery group] opportunities and these have bid competitively,’ Ms Donaldson said. This includes 90-strong group Asquith Nurseries, for which she was ‘inundated’ with enquires from ‘multiple overseas parties’. The chain sold last November to US- based Bright Horizons.
Now, just three weeks into 2017, France’s second-largest nursery chain, Les Petits Chaperons Rouges, has purchased Magic Nurseries, marking the first major acquisition of a UK nursery chain by a European provider.
The purchase gives the French multinational its first foothold in the UK, with Magic’s 16 settings across Northamptonshire, Cambridgeshire and Hertfordshire now accompanying 300 settings in France and Germany. The French group’s CEO, Jean-Emmanuel Rodocanachi, has said he wants to concentrate further expansion plans in these three countries.
Ms Donaldson said further ‘platform acquisitions’ – which give an overseas early education provider an entrance to the UK market – are predicted to follow suit before the end of the year.
There has also been ‘a real increase’ in the number of private individuals who live overseas and want to acquire nursery businesses in London as a means of getting a visa, she added.
GOING ABROAD
This is not a one-way phenomenon, Ms Donaldson said, with operators of UK nursery chains seeking to export their knowledge to overseas markets (see case study).
Opportunities are there for those able to take them, she said. In China, she said she met with the developers of an entirely new city. She said, ‘The pace of development is huge over there. They were creating eight purpose-built nurseries with capacity for 300-400 children each, and looking for a specific UK childcare provider to run them.’
One such key player in Chinese development is believed to be tech giant Huawei, which recently signed a deal with China Telecom Corporation to provide an ultrafast broadband network in Shenzhen, a city of seven million people. There are currently 661 international schools in the country.
In India, education is highly prized by parents, and presents opportunities for UK operators, as the childcare market is very fragmented and unregulated. ‘Indian families want to send children to bilingual nurseries’, Ms Donaldson said.
UK PERSPECTIVE
Back in the UK, the market is also thriving, with Christie & Co reporting that 19 completions took place in the first two weeks of the new year (comprised of deals involving a mixture of small chains and single settings). The average freehold asset price now stands at £1m.
According to Christie & Co’s business outlook report, ‘Childcare has government backing and is therefore positive for both investors and operators alike, on the proviso that costs of delivery are equally met’; and as a result, ‘Many high-street banks have recently rewritten and improved their credit lending policies towards the childcare sector.’ Ms Donaldson added that the market was particularly buoyant in the South and London, with deals often agreed ‘within days’, and that Scotland and the North West were also busy.
However, Ms Donaldson is seeing increased closures, ‘principally of smaller settings where long-term financial viability and sustainability has proven to be the principal challenge’. Smaller settings in disadvantaged areas are being hit hardest as they will be least able to cope with increases in costs, such as the National Living Wage, and this will have a particular impact where operators haven’t been able to raise their fees, she added.
The Government’s 30 hours of free childcare for three- and four- year-olds, which are due to be introduced in September, would create a ‘potential dampening effect’ in the third quarter of this year, with buyers looking at how this, funding rates, and occupancy, might impact business.
In terms of the effect the 30 hours might have on closures, she said that 90 per cent of sales were due to retirement, and reasons for the specific timing of a sale were varied. ‘It is very easy to blame a closure on something such as the 30 hours - there might actually be a whole host of other reasons to do with attracting high quality staff and Ofsted and red tape. The 30 hours is a consideration but not the main consideration.’
On Brexit’s possible impact, Ms Donaldson said it was less of a worry than cost pressures such as business rates. Giving the example of Bright Horizons’ acquisition of Little Unicorns in Canary Wharf, she said, ‘For a US provider to be buying nurseries post-Brexit [vote] in the heart of London’s financial district is a pretty strong signal it is business as usual.’
CASE STUDY: BRITISH EARLY EDUCATION
Over the past few years, public schools Eton, Dulwich and Wellington have been opening schools or exporting education programmes to China. Now early years entrepreneurs are getting in on the act.
One such venture is British Early Education, a company set up to take early years expertise abroad. Its first venture is a partnership with Chinese investors in Yixing, near Shanghai, where a 380-place setting is opening in February.
It is fronted by former First Class Childcare MD Andrew Clifford, who will act as education director for the setting. Mr Clifford said, ‘There will be an EYFS curriculum – this is the main appeal of the collaboration. In China, kindergartens are for children aged two to six years, so it will be English-language, but the final year will be dual-curriculum to support entry into the Chinese primary school system.’
He said the project came about following consultancy work in China and the Middle East. ‘Excellent links were established with UK Trade & Investment and the British and Chinese embassies, while I attended some partnership events and have been approached by several interested parties seeking collaboration,’ he said.
The Yixing nursery (plan pictured above), set in a 15,000 square metre, high-tech campus on which will sit a parent and family centre, will be run under the brand name Curious Minds Academy. The name was the brainchild of the two local business backers. Some local government funding has also been invested.
A ‘head teacher’, whose job role was advertised at £36,300, has now been appointed and a shortlist drawn up to fill the remaining 15 or so posts. An early childhood degree or Early Years Teacher Status is a requirement for these.
Mr Clifford said, ‘We initially thought we would be solely relying on people from the UK, but we have been really pleased at the calibre of people we have been able to find who already work overseas.’
He added that he expected the setting to take two years to grow to full capacity.
Meanwhile, British Early Education, which is co-founded by the director of another major nursery chain, is also developing a standalone franchise package to operate both in China and the Middle East.
‘The Chinese early years market is beginning to move out of large cities [into smaller ones] as companies are looking at how to retain professional people,’ Mr Clifford explained.
‘It’s clear that, in China specifically, the offer and the partnership will be tailored to meet the individual partner and local requirements, rather than a standard single approach.’
The company is also in discussions with three further parties about projects in Shanghai, Beijing and a collaboration in Hubei.
