As many of those involved in the early years space are aware, there has been recent national press coverage regarding the level of private equity (PE) investment in the UK nursery sector.
The main concern appears to be that it leaves the sector open to the increased risk of collapse.
The justification for this thesis comes from the example of historic PE investment in adult social care, which led to the collapse of Southern Cross and Four Seasons amid increased debt.
This comparison ignores some crucial differences.
First of all, the structure of PE involvement and signoff has evolved. For adult social care, PE firms saw an opportunity to sell the fixed assets (i.e., the care homes), withdraw the equity, and then load companies with assets with significant levels of debt.
This was against a very different economic backdrop with much more relaxed lending criteria. Today, investment committees and underwriters generally require much tougher criteria before an investment is authorised.
Secondly, investment in the UK early years sector has helped to meet growing demand, especially following the introduction of funded hours.
Without this support, it is likely that even more parents would be struggling to find places. Investment has also helped to improve standards, quality and outcomes.
Private involvement will continue to be a critical part of delivering the Government’s planned expansion of funding to under-threes.
Our most recent survey of operators – which was weighted towards larger groups – highlights that even though we are entering a period of margin defence, there is no plan for ‘mass closures’, partly because groups can weather short-term challenges better.
While there should always be sufficient scrutiny of a sector that is so vital in delivering social infrastructure, the recent coverage takes a far too simplistic and populist approach on views towards private equity behaviour, without assessing the positive impact it has had on the UK early years sector.