Top tips for selling a children’s day nursery

Top tips for selling a children’s day nursery

Having applied tremendous commitment and care to your business and the children attending your nursery (probably over many several years), selling your nursery is understandably going to involve a roller coaster of emotions. We cannot over-emphasise the importance of working with a specialist solicitor who is familiar with the legal issues that commonly arise in the sale of nurseries.

We understand that operating a children’s day nursery involves a number of legal and regulatory considerations, and that these need to be managed before and during the sale process. In particular, we know that both sellers and buyers want the smoothest transition possible.

We hope you can benefit from reading our top tips for selling a children’s day nursery.

1. Choose the right deal structure

You will need to decide how you wish to structure your proposed sale. You may even need to negotiate this with the proposed buyer. Usually, you will either be selling the nursery’s assets and goodwill (known as an ‘asset sale’) or the shares in a limited company (known as a ‘share sale’). A seller will normally want to structure the transaction as a share sale because this involves the buyer acquiring the entire business entity – with all its assets and liabilities relating to the nursery, and because it can also be more tax efficient. However, there may be reasons why a buyer is unwilling to acquire the shares and will only proceed by way of asset sale.

The right way to structure the sale is ultimately a negotiating point between the parties, but involving your solicitor at this early stage can be highly advantageous.

If you wish to understand more about the difference between an asset sale and a share sale, you can read our blog here.

2. Understand the property situation

If you own the commercial property from which the nursery operates, you will need to decide whether the property is included as part of the sale or if you wish to retain ownership of the property and to lease it to the buyer on completion of the sale. This requires careful planning and, if you wish to retain the property, may involve a minor change to your business structure prior to or on the same day as the sale.

If you lease the property setting from a third party landlord, then the buyer will be keen to understand how secure they will be i.e. how long is left on the lease, whether there is security of tenure provisions (the automatic right to renew the lease on the same terms, subject to some exceptions). You should be aware that if it is necessary to negotiate a lease extension or new lease with your landlord as part of the sale, the buyer might require you to pay any premium and legal costs demanded by the landlord. These costs can be significant and will need to be factored into the structure of your sale.

3. Know your numbers

Many nurseries are sold to buyers who are using bank or investment funding. The lender or investor will undertake their own due diligence on the nursery, including the property setting – whether that be owned by the business or leased from a third-party landlord. In addition, the buyer will want to test the cash and profit levels of the nursery (including against their funding costs). So the buyer will be keen to gain a detailed understanding of the current and potential future occupancy levels, and whether parents are up-to-date with fee payments.

Having your numbers in order and available for inspection can help to justify your asking price, and ultimately increase the probability of achieving your desired financial outcome.

4. Consider the requirements of OFSTED

All nurseries must be registered with the Office for Standards in Education, Children’s Services and Skills (OFSTED). OFSTED are required to be notified of any changes to the OFSTED registration or the nominated individual. This is a key consideration in the sale process because, without an adequate OFSTED registration, the nursery will be unable to operate after completion of the sale.

This point requires discussion and negotiating with the other parties at an early stage, and should be factored into the overall timetable and structure of the sale. We are familiar with negotiating workable solutions to the OFSTED transitional requirements, and can advise on the best way forward for you.

5. Confidentiality agreements

Remember, you will be holding sensitive personal data about young children and parents will understandably want to know that their children’s information is being kept safely. They might become nervous or uncomfortable on finding out that the nursery is being or has been sold.

A confidentiality agreement (or non-disclosure agreement) should be put in place with potential buyers of the business at an early stage. In addition, personal data about children and staff members can be supplied in anonymised format so that they are protected from misuse of the information by the buyer (especially if the buyer withdraws before the sale completes).

6. Engage solicitors at an early stage

Involving a specialist solicitor at an early stage can be highly advantageous if you are proposing to sell your nursery. We are used to negotiating the common issues that tend to arise – such as whether the sale should proceed as a share sale or an asset sale – and will looking to negotiate terms which are fair and usual in nursery sales. We can advise you if anything the buyer suggests is unusual or unfair to you. This will help you make a well-planned and informed decision before committing to the main legal phase of the sale, and incurring legal costs which could have been avoided by taking advice at an earlier stage.

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