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Planning to Expand Your Nursery Business

Growing beyond your first setting requires careful thought but, with the right support, there’s no reason you can’t make a success of expansion…

Courteney Donaldson
by Courteney Donaldson
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The specialist childcare team at Christie & Co works with a range of clients, from the owners of single settings through to national and international conglomerates.

Each of the largest multinational childcare groups had to start somewhere, but knowing where to start on any new journey can be a daunting experience.

At any one time, there will be a wide selection of day nurseries for sale.

Childcare markets across the world are fragmented in their nature and this means there are significant opportunities for you to expand your business.

The vast majority of private settings in the UK, indeed some 80% of overall provision comprise single settings.

For those providers that are owner managers working in their setting on a daily basis, the idea of opening a second setting might just not be a desire, or if it is, the thought of such could be really quite daunting.

Many of the family-founded regional groups that Christie & Co works with initially set out with the intention of having one nursery.

However, as their occupancy levels grew, their business matured and their reputation developed, they found that demand from local parents heightened and each came to a stage whereby they were unable to meet the demands of parents, due to their setting’s capacity limitations.

Many of those owners, while having no long-term intention of creating a nursery group, felt compelled to find additional premises in their locality.

Some started that journey by identifying nurseries in their local area with a similar culture to their own that might be receptive to selling, or used the services of a specialist agent in order to find a business to acquire – perhaps one where they could ‘add value’ via occupancy growth and achieve operational efficiencies.

Others opted to seek property that they could convert, subject to planning, into nursery use. Those organically developing a new setting had the option to create their own bespoke centre.

Your approach to expansion, be it via organic development or existing business acquisition, will have a direct impact on your success.

Know yourself

It is extremely important that you carefully consider your personal strengths as well as areas for development and where you may require support.

This will require you to be honest and self-critical because one of the greatest assets in your business is you.

The qualities that will help you to succeed in expanding are your own entrepreneurial skills, including optimism, energy, self-confidence, ambition, integrity, passion about quality and attention to detail – you also need to be balanced and logical.

Preparing your credentials

Your credentials demonstrate your strengths and experience, and emphasising these during the acquisition process is incredibly valuable – they can present a compelling case to a seller, showing why you personally would be an ideal buyer for their business.

Summarising and showcasing your set of skills, qualifications, experience and intended future plans for the business you plan to buy will be of particular use to lenders.

Since the global economic downturn, banks’ desire to mitigate risk has increased and a comprehensive showcase of your credentials will highlight your experience and sector knowledge, which will provide comfort to your proposed lender.

You can also compile a list of what professional recruiters call your transferable skills, which derive from one area of experience and can be applied to another.

Finding the right business

You will need to identify the attributes of the business you are looking to acquire.

This includes defining your acquisition price range, geographical requirements, size of capacity, whether you seek a freehold or leasehold nursery business, and whether the business will operate under management.

Careful consideration must be given to the culture and values of your organisation, and how comparable these are when looking at nurseries that you may be thinking of acquiring – are policies and procedures aligned, how comparable are staff salaries and conditions of employment, holidays, bonus structures and so forth.

Location is always of paramount importance, but even more so when contemplating expansion.

Developing a new nursery or acquiring a setting very close to your own could potentially cannibalise trade, but having a setting too far away means that the deployment of your management time, skills and resources could come under significant pressure.

A second setting within a reasonable radius will aid management, the partnership and relationship between both settings and, as such, can also aid staff deployment between settings in the event of unexpected periods of staff illness.

Many sales will be kept highly confidential in order to mitigate any risks associated with the potential departure of staff and parents.

For this reason, it will be essential to look beyond web searches for opportunities and speak directly to agents who specialise in the sale of nursery businesses and are able to advise on your specific requirements.

The agents’ primary objective is to achieve the best possible price for their client and subsequently, ensure a smooth transaction through to completion.

Most nursery acquisitions will be subject to financial and property due diligence, particularly if funding is required.

The acquisition may take between four and six months from the deal being agreed to completion, which is of course dependent on the nature and structure of the sale.

When acquiring your second setting, if you can demonstrate that your existing business has a proven track record, funding from a bank will be easier to secure and potentially more preferable terms will be achievable, compared to those that may be offered to a first-time buyer.

Financing your expansion

When determining how to finance your next acquisition, consider how much of your own capital you can put towards the purchase price and what level of debt your business can sustain.

For freehold nursery businesses, UK banks may consider a loan on the basis of 60–70% to value (LTV), depending on your experience in the sector and track record as a buyer.

Some banks specialise in particular markets and are keen to lend to aspiring purchasers in those markets.

Speaking to a financial broker that specialises in securing loans for nursery business acquisitions early on will be a great advantage and will ensure that your aspirations on the funding front are realistic and realised.

Location and performance

Once you have identified a nursery business that appeals to you, thoroughly analyse its location, tenure, property and performance.

Keep in mind that while physical aspects of a building may be altered, its location cannot be changed. Location is of prime importance to the success of any nursery business, as it dictates customer demographics, competitors, local trading conditions and fee levels.

Consider tenure, the condition and configuration of the property and any additional characteristics, such as fixtures and fittings, parking and outdoor areas.

Finally, assess the business’ financial state through its accounts, profit and loss projections, cash-flow forecasts and management accounts, as these will be reflective of business performance.

Business performance is the single most important factor associated to the value of a business as a going concern.

The business’ financial information will reveal whether it is well run, overpriced for the amount of trade involved, and if there are areas within the business that could be extended or operated more effectively.

Making your offer

Your offer should be the monetary sum to purchase the freehold or leasehold interest, the fixtures and fittings, and the goodwill of the business.

Your offer will be accepted, rejected, subject to further negotiations or counter-offered by another potential buyer.

Once your offer is accepted, you will need to create a strategy with the owners in terms of a communication plan for staff and parents about the change in ownership, teamed with arrangements as to how the handover of the business will be implemented in practice.


Choose the right business

  • Know yourself – define your priorities, wants, needs, hopes and plans.
  • Prepare your credentials to demonstrate your sector experience to vendors and lenders.
  • Identify the attributes of the nursery business you are looking for by asking:
    • What is your acquisition price range?
    • What are your geographical requirements?
    • Do you seek a freehold or leasehold nursery business?
    • Are you looking to acquire a business operated under management, or one which you will manage and run yourself?
    • What size of capacity of setting do you desire?
  • Assess your financial situation:
    • How much of your own capital are you putting towards the purchase price of the business?
    • What skills, experience and ideas are you bringing to the business?
    • What level of debt can the business itself sustain?
  • Speak directly to specialist agents and financial brokers.
  • Analyse your chosen business’ location, tenure, property and performance.
  • If your offer is accepted, work with the owners to ensure a smooth transition post acquisition completion.

Courteney Donaldson, MRICS is managing director – Childcare & Education at Christie & Co. Visit christie.com.

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