By: Ben Barbanel, Head of Debt Finance at OakNorth Bank
Despite the ongoing challenges the pandemic has caused, the early years sector has shown incredible resilience over the last 12 months.
Prior to the pandemic, the early years sector was considered a fairly sound investment for most investors. Given it’s one of the only recession-proof industries and viewed as a socially responsible sector, it has consistently attracted investment from banks.
According to research from LaingBuisson[1], the UK’s nursery market is worth £6.7bn and is projected to rise over the next few years. This is largely driven by an increased need for effective childcare, stemming from major socioeconomic trends, such as the rise of dual income families to meet the increased cost of raising a child and women focusing more on their career progression[2].
Based on conversations with borrowers and potential prospects in this sector, we’re hearing that many are looking for less aggressive leverage options and want to work with a lender who can be a long-term partner. This creates an opportunity for us to fill this gap in the market and further support top management teams in the sector.
Since OakNorth Bank’s launch in 2015, we’ve provided support to a number of nurseries in the early years sector – our nursery clients range from nursery owners and operators who run one or two settings, to private equity firms that back anywhere from 10 to 30 nurseries.
A few of our past nursery deals include:
- A £750k loan to Bright Minds Daycare to fund refurbishments and working capital requirements, as well as purchase new day care equipment;
- A Coronavirus Business Interruption Loan Scheme (CBILS) loan to Little Adventurers Daycare Nursery to support the acquisition and development of a second nursery;
- A loan to support an unnamed private equity firm with its nursery buy and build strategy.
In the past few months, we’ve also noticed an increase in market consolidation and acquisitions which demonstrates strong appetite for day nurseries in 2021[3]. Typically, we’ve been speaking with two types of borrowers – ones who want to continue to grow and ones who want to get out of the sector.
While some nurseries have been able to withstand the recent lockdowns, sadly some have had to permanently shut down[4] – this creates a greater opportunity for experienced management teams to purchase an existing site, bring on new talent and build a new long-lasting nursery in the process.
As a nursery owner or operator, this is when it’s vital to have a lender that can provide fast, flexible and accessible debt finance to support you on your growth journey.
At OakNorth Bank, we lend to profitable, high-growth businesses with strong management teams such as Bright Minds Daycare and Little Adventurers Daycare Nursery. We also look at a number of other factors, including:
- Where is the nursery located? How will this affect demand?
- What condition is the nursery in? Will it need repairs? Does it have ‘kerb-appeal’ with outdoor areas, parking, etc?
- What is the Ofsted rating of the nursery or nurseries?
- What is the demographic? Is it in an affluent area?
- What is the current supply vs what is forthcoming?
- What is the daily rate compared to other nurseries in the area?
- What is the nurseries positioning in the market? What is its USP? What is it trying to achieve?
Given the growth opportunities in the early years sector, I strongly believe that this industry will be a long-term winner in the post-pandemic world. If you’re a nursery owner or operator and looking to scale your business, please reach out and I’d be happy to discuss your funding needs. You can reach me at [email protected].
[1] LaingBuisson – Childcare UK Market Report 16th edition (with Covid-19 updates)
[2] Forbes – New Study: Millennial Women Are Delaying Having Children Due To Their Careers
[3] Christie & Co – Business Outlook 2021 report
[4] Mayor of London – Two thirds of London’s nurseries risk closure within the year
