We have talked in the past about the current inertia in Westminster to ‘do something’ meaningful to help with the challenges in the childcare sector, and that the Government might only do that once things reach a critical level. We seem to be getting to that point – it was reported in early February that a number of influential Tory backbenchers have created an informal pressure group to push the Chancellor to cut the costs of childcare in the March Budget. We will have to wait and see what happens, but options might include increasing funding rates, making it easier for parents to apply for Tax-Free Childcare, and business rates exemption. Changes to childcare ratios seem to be off the table of options for now.
Meanwhile, the crisis has spilled out of the early years space, with the Out of School Alliance (OOSA) losing almost 700 of its breakfast, after-school and holiday club members in 2021/22.
It's important to contextualise that nurseries aren't the only sector facing challenges, and that M&A in the childcare space is holding up reasonably well against other sectors. In 2023 so far, Kindred has acquired Bright Little Stars, Kids Planet has acquired Sunbeams, and there are a number of acquisitions in play or on the cusp of being announced.
That said, almost every group with which we are speaking is taking a more selective approach this year to acquisitions. After an ‘arms race’ of buying and building platforms over the last two years, there is now a lot more scrutiny around how recently acquired businesses are actually performing and what quantum they are contributing, and there is a renewed requirement from investors to have more certainty around accretive performance from bolt-ons. That inevitably means a fallback to safer demographics, a minimum capacity threshold and more certainty around enrolment (both in terms of parental demand and being able to staff this demand).