Times are tough for many nursery owners, but the sector as a whole is increasingly attractive to investors. Leah Turner, co-founder of nursery brokerage, Owen Froebel, explains why

Spend just five minutes on a nursery owners’ chat forum at the moment and you’ll come away with a feeling of gloom.

Owners are rightly extremely concerned about their financial situation, with many feeling under attack from a procession of whammies including increases to employers National Insurance contributions, the National Minimum Wage and business rates, and confusion around additional charges on top of funded hours.

The National Day Nurseries Association estimates with changes in NI and the NMW we are looking at an extra cost of about £2,600 per employee, per year.

Who is investing?

Despite all this, the day nursery sector remains an attractive proposition, with a flurry of new investors entering the market.

In 2025 so far, new investors have made up 49% of new registered buyers, up from about 35% last year.

A lot of new buyers are coming from private equity funds and we also have a number of entrepreneurs – investors who are not in the same class as private equity funds, but may have started a previous business and are now looking to invest in a new one.

We also have people moving from neighbouring sectors.

Day nurseries are classified under healthcare and often face similar regulations, funding systems, and structures.

Healthcare businesses such as dentists, pharmacists, and care homes are now looking at day nurseries as a good sector to expand into.

And, given the fact that nurseries are currently cheaper than care homes, this move makes sense.  

Why invest?

When I talk to nursery owners looking to exit the industry, they often say they don’t know why anyone would want to enter this sector. Unfortunately, a lot of things that drive people to exit the sector are frustrations – funding, bureaucracy, Ofsted.

However, it’s useful to understand why a buyer may be looking to come in and the positives they see in the sector.

More funding

One positive is the expanded eligibility for funded places and increased funding.

There is always going to be a debate about funding rates, but the fact that funding exists at all can be attractive to those looking to enter the sector.

Buyers see this as a sector where a certain income is guaranteed.

Funding is ‘bread and butter’ money, paying for your basics.

Of course, you have to build your business on top of that to make it profitable, but it gives you that foothold that a lot of sectors don’t offer.

Due to the increased funding eligibility, we are seeing buyers shift their focus away from looking at nurseries in very-affluent, mainly-fee-paying geographical areas.

Buyers are now paying more attention to the funding rates in different areas than they have before.

For example, the average funding rate in Birmingham is £9.18 an hour, and in neighbouring Solihull it is £8.42, while in the West Midlands as a whole the average private hourly rate is about £5.20.

You have neighbours side by side, with a difference in the funding rate, but with both of them on much more than the average hourly rate.

Buyers are increasingly engaging in that kind of granular thinking as they look at how they can drill down and maximise profitability.  

Low multiples

The day nurseries sector also has low multiples compared to comparable markets, such as dentistry and care homes.

Multiples are a way of calculating a company’s attractiveness to investors through dividing its market value by its earnings before interest, tax, depreciation, and amortisation (EBITDA), so obviously a lower multiple means a higher potential return on investment.

At the moment, multiples in the nursery sector for nurseries with an EBITDA of £150,000 are sitting at around five to six, depending where in the country you are.

In sectors such as dental and pharmacy, multiples have peaked at eight or nine.

Investors are saying: “If I can buy now, when the market value of this nursery is five times its EBITDA, in five years time the value should be around eight times its EBITDA, and that will be a worthwhile return on my investment.”  

Communities

A lot of private equity funds are attracted to community-focused investment as they have a certain amount of funds they want to be spent in the community.

Nurseries come under that heading, so are seen as a great place to make money while still ticking that community box.

Easier finances

We have seen a lot of second-tier lenders entering the market, like Unity Bank.

These lenders have not been particularly focused on the day nursery sector in the past, but they are entering the market because there is so much growth to be had here.

Banks are keen to lend to owners of one or two settings who are looking to expand, as they see them as a safe bet – they work hard and there are plenty of opportunities for growth, so they want to help you.

On the other hand, it’s still difficult for individual buyers who are new to childcare as banks are avoiding first-time buyers unless they have very clear childcare experience.

These buyers may not really understand how the nursery business works, and if you don’t have experience of childcare or an investment background, you end up being a business owner who is at the mercy of a manager, relying on that person to oversee day-today operations.

The margins in this sector are way too small for a business owner to be learning as they go along.

Business models

As markets continue to grow and expand we are going to see increased opportunities for further growth and expansion.

Nursery owners will learn from profitable business models and innovation established by existing groups.

Investors believe there are changes they can make to a nursery’s business structure which will allow them to make money, even if nothing else changes.

Funding guidance

Recently, I have been asked by nursery owners what buyers think about the Government’s recent guidance on funding, which includes clarification on what nurseries can and cannot charge parents above the funded hours.

I have to say, buyers don’t really think anything about it.

This seems strange to nursery owners, when the conversations on the forums make it feel like this has a massive impact.

But I don’t think any of those changes have come as a surprise to anyone and the majority of settings were already abiding by those rules, so they are not really making an impact on buyers who already assumed that this was in place.