Buying a Children’s Day Nursery

2014 has seen various deals in the children’s day nursery sector and a burgeoning mid-market of providers for whom there are opportunities to expand.  Funders are prepared to make capital available (though have strict criteria which need to be met) and there are opportunities for acquisitions.

A children’s day nursery, of course, is not just a building – it is a business with staff, children, suppliers and other features with which, as a potential buyer, you will need to become familiar.

Whether you are buying one setting or a chain, it is wise to do your homework before you buy.  Here are some thoughts about matters you should consider if you are thinking of extending your business.

1. Having identified a target can you raise the finance to buy it?  Pulling out of negotiations because you cannot raise the money is not good for credibility, not to mention the waste of your time and effort.
2. Do a realistic assessment.  If any of the settings have low occupancy, have difficulty retaining staff or are not profitable what are the reasons?  Can you, realistically, sort out the problems?
3. From a legal angle, how is the deal to be structured? Are you buying the shares of a company or just the business, but no shares? If you buy the shares in a company it comes with all the liabilities (current and historic) too, which can be a disadvantage and may mean more investigations before you sign the contract. However, if you just buy the business there will be additional work to transfer to you all the contracts with parents and suppliers to the business.
4. Restrict to a minimum the number of people (even internally) who need to know about the deal, to reduce the chance of information leaking out and rival buyers appearing.
5. Offer a balanced confidentiality (or non disclosure) agreement to the buyer which protects confidential information of both the target and your business.
6. It is worth doing some research about the properties from which the settings operate.  Are they freehold or leasehold?  What is the history of the sites? Are there any environmental concerns? Are you likely to get planning permission if you want to expand?  Have the statutory asbestos surveys been done and acted on?
7. Get a valuation from someone who knows about the sector. Sellers can have unrealistic expectations about prices. You may have to pay over the odds to make a strategic purchase but at least be aware that is what you are doing.
8. Is there any history of complaints, unsatisfactory OFSTED inspections or serious accidents which need to be investigated?
9. What are the staff terms of employment? Do they ‘fit’ with those of your existing staff or are they going to cause friction? They cannot be changed without the agreement of each member of staff.
10. Don’t underestimate the amount of management time a purchase involves.  Good advisers can help enormously but you and your team will need to be involved in the detail.  A thorough buying process can help the integration work you will need to undertake and opens your eyes to issues which you will need to tackle after the deal has been done.