Things are about to get a lot tougher for anyone thinking about starting up their own childcare centre. That is the warning from specialist childcare business brokers who are often approached by people deciding between buying an existing childcare business versus starting up their own one. Starting up a childcare business may sound exciting, but the reality is actually quite different says Munish Verma, a broker with New Zealand’s leading SME business broking firm, ABC Business Sales. “Entering the childcare sector with a new start-up is especially about to get much harder due to proposed ‘Network Management’ regulations being introduced by the Ministry of Education from August next year,” says Verma. Network Management will require anyone wanting to set up a licensed early childhood service to apply for the MOE’s approval that a proposed service is actually needed in a particular network/ suburb. If the MOE do not grant the approval (a process that can last up to two years), the property cannot be licensed. The regulations also mean it would be logical for developers and landlords to seek this pre-approval prior to resource consent application, which means an extra layer of costs/time with no guarantee of success, creating a disincentive for future builds. Alternatively this change will have positive benefits for existing childcare centres by reducing potential oversupply in areas, ensuring that new competition is only built where there is demand for more centres. Verma says with the advent of the proposed Network Management regulations and the MOE’s pre-approval stage it will take much longer to set up childcare centres from August next year. “At this stage it can work out to be much more economical to purchase an existing business with a license or a tenanted childcare freehold versus planning, consenting and setting up one up from scratch. Especially with the risk of no guarantee of passing the preapproval stage.” Supply chain disruptions are another bottleneck and not likely to go away for some time, says Verma. “Despite Auckland and Waikato being in lockdown over the last couple of months, the childcare business sales market has been busy with enquiry from buyers from all around the country. There’s been particular interest for freehold investment properties and centres with a licence size of 50 places or above, with a strong management team in place offering a smooth transition for new owners. Verma’s colleague and childcare centre specialist Linda Harley adds that as interest rates have declined they have also seen a lot of buyers in the market wanting freehold childcare properties as passive investments. “With the benefit of a stable tenant and long leases these properties are seeing high prices being paid for quality properties” says Harley. “It’s also much easier to grow a business with momentum than starting from scratch. It takes a special person with deep pockets and lots of patience to start from nothing” says ABC Childcare broker Anthony Gilbert. Start Up vs Business Acquisition - Childcare December 2021 { 37 }
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