I have previously mentioned the effect the recession is having on the nursery sector, especially on occupancy and profit. However, a recent transaction within my company has identified a rather dramatic twist which could have quite radical consequences over the next few years. I refer to the current 'downgrading' of nursery valuations by professional advisers.
Since 1997, nurseries have usually been valued as a multiple of earning, expressed in a way which takes account of various exclusions. This multiple has traditionally been fixed at six and a half times such earning and, as such, is similar to other sectors. While many thought this level was slightly low when it was fixed, it was possible to show a solid business-like return on nursery investment at that level. As a result, there has been an unprecedented growth in new, purpose-built nurseries over the past 12 years, which has been one of the factors contributing to rising standards.
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