How to ensure nursery group sales and acquisitions go according to plan

It has been said, the larger the deal, the easier the transaction. But why should this be the case when sizeable nursery groups are likely to have weighty amounts of information to accompany the sale?

In simple terms the answer is the larger the business, usually the better the quality of information provided by the sellers. When you are dealing with a nursery group, it is often the case that information is already collated and organised for efficient group management. It is also likely that the advisors on the transaction, being accountants, lawyers and your broker, are likely to be specialists offering good quality advice with excellent support from diverse in-house experts. That said, this isn’t always the case.

The creation and running of a group of nurseries will have been the result of many years’ hard work and investment. It would therefore be a mistake for the seller to try and cut costs when it comes to appointing advisors in preparation for, and engaging in, a sale.

A seller should plan well in advance and consider the information which will be required and address any issues that may arise in the transaction. For example, if assets are in the wrong place (such as if the property sits outside the company) then advice neds to be sought early to rectify any issues in advance.

This is a classic reason for transactions to wobble, be delayed or even collapse; because the complexity of moving assets can sometimes be underestimated. That said, a good firm of experts who have an understanding of the technical tax and property issues will normally find a resolution. Again, this is why it’s critical to engage the right professionals and engage with a broker that understands the needs of the industry.

As a broker I am always pleased if I know the legal team working on the transaction and reassured if they are a firm with a strong commercial team – preferably with childcare sector experience. Engaging with the right advisors early can make or break the deal. I have worked one particular solicitor on multiple transactions involving nursery groups and the advice from Holly Threlfall, from Wilson Browne Solicitors is always to prepare for the sale and avoid purchase price chips, onerous indemnities and undue stress. 

Holly provides a list of due diligence questions and collates responses in advance. The complexity of requests from the buyers’ side can differ, but generally the requirements are similar and as an industry specialist Holly has an understanding of concerns that arise. Holly then works through the information provided to prepare both the data room, and her client, for the sales process before a buyer is even found.

‘How long is the transaction likely to take?’ is always asked and a common response from a buyer is ‘we have the ability to complete in eight to ten weeks provided we receive timely responses to enquiries.’ Sadly, this is frequently the point when delays ensue because of the seller’s inability to provide the required information at speed. It’s at this point that the badly prepared seller is rushing around arranging gas safety reports, asbestos reports and frantically getting contracts and procedures up to date.

Buyers normally require a period of exclusivity which everyone is working towards, which is built into the Heads of Terms. Heads of Terms also establish the deal structure and lay the foundation for a successful deal. This is where preparing for your sale properly and engaging with the right broker and professionals comes into play. If you plan properly and use the right experts, you get a smooth transaction which is well structured.

Buyers naturally want to ensure the acquisition integrates well into their existing group and doesn’t forfeit the unique qualities of a business. The tried and tested formula is for new owners to not make changes too early and they rely on information provided in the sales process to evaluate strengths and weaknesses. Therefore, ensuring responses to enquiries are right is key for the business success and to avoid warranty claims.

So, the best advice I can give sellers is to plan, seek advice form a specialist broker, and appoint an expert lawyer at an early stage. A good corporate lawyer dealing with sales and acquisitions regularly will know what to expect from the buy side and take a pragmatic approach to areas such as due diligence, disclosure and warranties which strengthens the likelihood of a swift and pain free transaction. 

Andrew Coulter is managing director of specialist broker Coulter-Consulting