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Buying Your First Nursery Can Be An Expensive And Time-Consuming Process, So It Pays To Be Prepared

The days of acquiring a nursery with a 100% business mortgage are long gone, says Courteney Donaldson

Courteney Donaldson
by Courteney Donaldson
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At any one time in the UK there will be a wide selection of day nurseries for sale, so it’s essential that, rather than ‘trawling’ the web for possible acquisition opportunities, you speak directly to agents that specialise in the sale of nursery businesses and advise them of your specific requirements.

The agents’ primary objective is to achieve the best possible price for their client, often the vendor, and then subsequently nurture the transaction through to completion.

Finding finance

The first consideration when seeking to buy a business is how much you can afford. This will primarily be determined by the size of your cash deposit: the days of acquiring a nursery with a 100% business mortgage are long gone.

As a business buyer, you could borrow money from family, friends and banks; or through general mortgage brokers, business mortgage brokers, venture capital firms and business angels. It’s important that you seek a lender who understands the nursery sector and has a professional sense of what you’re trying to achieve.

How much you can borrow depends on so many personal variables that it’s impossible to give general advice. There are, however, four important factors that all lenders consider:

How much of your own capital are you putting towards the purchase price of the business?
Do you have a good financial history and credit rating?
What skills and experience do you bring to the business?
What level of debt can the business itself sustain?
For freehold nurseries, whereby you will be acquiring the freehold property and the in-situ business, banks may consider a loan on the basis of 60-70% loan to value (LTV), depending on the experience and track record of the buyer.

Given the size of ‘cash’ deposits required for freehold acquisitions, many new entrants to the sector have a preference for leasehold business, as the cost of entry is often substantially lower than with freehold acquisitions.

However, while leasehold nurseries will often have a lower capital value, the LTV as assessed by the bank is likely to be closer to 50% or less, depending on the term remaining on the lease and other salient lease terms, such as provisions for a landlord’s ‘break clause’; some banks may not wish to lend against leases.

Speaking to a financial broker, such as Christie Finance, that specialises in securing loans for nursery business acquisitions at the outset of your acquisition plan is important and will ensure that your aspirations on the funding front are likely to be realised.

Making an offer

When you decide to make an offer, you can make it through the vendor’s agent. Your offer should be the monetary sum to purchase the freehold or leasehold interest, the fixtures and fittings and the goodwill of the business, by way of either a share, or asset purchase.

You should advise your solicitor of your offer and send it to the vendor’s agent in writing. Your offer may be accepted or rejected, and you may find yourself in further negotiations. There may be a counter-offer from another potential purchaser. At this point you should decide whether you wish to continue negotiating yourself, and find out whether the vendor, via their agent, is happy to negotiate further with you.

Remember that just as the vendor has appointed an agent to assist them with the sale, you can appoint an independent non-conflicted agent or specialist property advisor to act on your behalf. They can assist you in the formulation of your offer and negotiate on your behalf.

Completing the deal

Often, agreeing the deal is the easy part. As a purchaser, this is where your commitment and contribution to progressing your acquisition really starts. As a buyer you need to step up and embrace the process.

From a deal being agreed, and a Memorandum of sale (MOS) issued, it’s not unusual for a transaction to take up to six months to complete, depending on the complexity of the deal, the amount of due diligence required, the size of any bank loan required to facilitate your acquisition and the experience of your solicitor.

However, if you are a cash buyer involved in less complicated acquisitions, whereby there is no need for pre-completion Ofsted re-registration, sales can be completed within six weeks. Much depends on the experience of the buyer, the desires of the vendor and the calibre of the agents and advisors appointed to facilitate the transaction.

Other costs

Alongside the headline acquisition sum, you will need to be mindful of other associated costs. While not an exhaustive list, ‘deal or acquisition costs’ may include solicitors’ fees, a ‘Red Book’ valuation if you have financing through a bank, and stamp duty.

The handover

The final period leading up to completion will be incredibly busy, but your solicitors and bank should communicate frequently with you, as you move towards an agreed date for the exchange of contracts. For sales structured as asset sales, Transfer of Undertakings (Protection of Employment) regulations (TUPE) consultation processes need to be implemented.

For first-time buyers, the vendors will often agree to be on hand during the first week of the business being operated under new ownership. Thereafter, deal negotiations may have facilitated for the former owners to be available for a specified period of time, which could be between four weeks and three months.

When you are finally in place, enjoy your new business, embrace the challenges, be proactive, forward thinking and make your nursery the premier setting in your local area.


KEY QUESTIONS

Before contacting agents, ask yourself:

What is my acquisition price range?
What are my geographical requirements?
Do I want a freehold or leasehold nursery business?
Am I looking to acquire a business operated under management, or one I will manage and run myself?
What size of registered capacity do I want?

Courteney Donaldson MRICS is head of childcare at Christie + Co. Visit christie.com.

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