Strong premium school market and promising international childcare outlook
Demand from buyers and investors at the premium end of the independent school market remained strong in the first half of 2023, according to the Childcare & Education: Mid-Year Review 2023 published by Christie & Co.
Notable transactions so far this year included the purchase of a minority stake in Thomas’s London Day Schools by private equity firm Oakley Capital and the acquisition of Alpha Plus Group, a portfolio of 17 schools and nurseries by Inspired Education.
The first six months of 2023 have also seen intense buy-and-build activity from Dukes Education. The premium private schools operator inked several acquisitions, including Notting Hill Prep in London; Colégio Júlio Dinis (CJD) in Porto; International Sharing School in Lisbon; Institute of Education in Dublin; and Copperfield International School in Verbier.
Furthermore, Dukes received growth capital – which comprised senior debt and long-term permanent minority equity – from Universities Superannuation Scheme (USS), Macquarie, Nomura and a perpetual capital vehicle from KKR.
“Off the back of an incredibly busy period of domestic and international acquisition activity, when the opportunity arose for investors to work with Dukes Education, appetite was strong,” Christie underlined in the report.
Overall, despite remaining stable, the independent school market in the UK has been affected by a reduction in international students flow, especially for primary schools, according to the report. This is due to changes in overseas regulations and the desire for many parents to have their children stay closer to home.
As a result, finances for a lot of schools, especially smaller capacity, provincial schools, are becoming increasingly tight, as underlined by the report.
Furthermore, Christie noticed that there has been limited appetite for schools in financial distress. However, once closed, these are often snapped up by expanding SEND operators which see the great potential these properties bring to fulfilling the demand for their services.
Lenders have been keen to support operators that excel at providing a superior level of early childhood education and care, whilst staying close to the day-to-day financials, and are agile enough to adapt to an ever-changing financial landscape, according to the report.
Increased government funding into the day nursery sector has been long-awaited by childcare providers and parents alike, but it is unclear if the funding will cover rising costs and if it will suffice for operators, as well as how it will be implemented, the review underlines.
Compared with 2022, Christie saw a greater demand from operators with single settings in leasehold premises looking to buy the freehold and smaller groups refinancing to acquire additional settings.
Deals facilitated by Christie Finance included assisting first-time buyers in securing their first setting, enabling an existing operator to purchase the freehold of their setting by utilising the goodwill as a deposit and securing 100% funding for an existing operator to expand their portfolio.
International transactions in ECEC
Despite the volume of anticipated international transactions has been muted thus far in the early childhood education and care (ECEC) market, Christie expects to see the acquisition pace gain momentum during the second half of the year.
Last year, we saw unprecedented levels of domestic and international market activity. In the UK, the three most active buyers acquired 53% of all ECEC businesses sold at Christie & Co while, in the US, as reported in Exchange, the 50 largest for-profit childcare groups either acquired or opened 537 ECEC settings, representing an 8% increase on the previous year’s market activity.
Notable international transactions included the sale of Australian childcare group Only About Children, with its 75 ECEC centres, to Bright Horizons for around $320 million and the acquisition of All About Children, a portfolio of 38 ECEC settings in the UK by Partou, the largest childcare provider in he Netherlands.
According to the report, whether buying in domestic territory or internationally, for those growing their portfolios via acquisitions the most critical point is the smooth integration of the newly acquired ECEC business within the buyers wider company, its culture and operational support system.
“Despite increases in the cost of capital, continued high inflationary levels in some locations, and ongoing global workforce recruitment and retention challenges, owners of high-quality, market leading ECEC businesses that evidence strong earnings, have plenty of reasons to remain confident, and we expect to see international market activity gain momentum in Autumn/ Winter 2023,” said Courteney Donaldson Mrics, managing director childcare & education at Christie and Co.