Mohith Sondhi, Senior Director of Debt Finance at OakNorth Bank, writes:
Prior to the pandemic, the early years sector was considered quite robust and regarded as a safe bet for most investors. According to LaingBuisson’s 16th Childcare UK Market report, the UK’s nursery market is worth £6.7bn and is projected to rise over the next few years.
However, when the pandemic hit, we heard from a number of owners and operators in this space that lenders were pulling back from new lending – at least temporarily – so that they could focus on managing their existing loan books. At OakNorth Bank, we took this as an opportunity to continue to support experienced management teams in the early years sector.
Since our launch in 2015, we’ve provided support to a number of nursery owners and operators. Our nursery clients range from owners and operators who run one or two nursery settings and are looking to expand in the future, through to private equity-backed nursery chains which may have dozens of nurseries in their portfolio.
For example, in December 2019, we completed a £750k loan to Bright Minds Daycare, is a Birmingham-based premium independent nursery group with four nurseries in their portfolio. The loan was to fund refurbishments and working capital requirements, as well as purchase new equipment. In June 2020, we completed a Coronavirus Business Interruption Loan (CBILS) to Little Explorers Day Nurseries, an Essex-based nursery with one site which was looking to grow. This was to support the acquisition and development of a second nursery.
Although we will continue to feel the effects of the pandemic, the early years sector has shown great flexibility and adaptability in these troubling times. For example, nurseries were forced to shut their doors in the first lockdown and had to adapt to a new way of teaching. This meant nursery operators and owners had to adopt a technology-first approach and implement virtual classrooms and e-learning, as well as ensuring classrooms were COVID-secure. Adapting to the current climate has helped a number of nurseries stay open in the second and third lockdowns.
However, this will unfortunately not be the case for all providers – research from the Early Years Alliance in May, found that one in four nurseries, pre-schools and childminders in the UK say that they will have to close permanently within the next 12 months due to financial problems.
Over the next 12 months, there is likely to be a significant distressed property element which could give rise to opportunities from a real estate perspective to acquire the right site in the right locations, either to repurpose into a nursery or build a completely new one.
At OakNorth Bank, we want to ensure that we can continue to support strong nursery operators throughout 2021 and beyond, so please do get in touch if you think we can help - [email protected].