NAVIGATE, INNOVATE, ACCELERATE - Christie & Co
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NAVIGATE, INNOVATE,
2019
Business Outlook
ACCELERATE
1
christie.com
2
NAVIGATE, INNOVATE, ACCELERATE
CONTENTS
4
Managing
6
Valuation &
8
Bank Support
Director’s Capital Markets & Business
Statement Recovery
10
Regional
12
Christie
13
Christie
Overview Finance Insurance
14
Medical
18
Care
21
Consultancy-
Healthcare
22
Childcare &
26
Retail
30
Leisure
Education
33
Pubs
36
Restaurants
39
Hotels
42
Consultancy-
43
International
50
Transaction
Hotels Tables
57
Venners and
58
Charity
Orridge Activity
3
christie.com
2018 was surprisingly upbeat for some. Uncertainty
fuelled by ongoing Brexit negotiations only became
apparent in the last few weeks of the year as Parliament
failed to reach a consensus on how to proceed.
CHRIS DAY As ever, consumer confidence is key in driving these markets, which are more complex than
Global Managing Director economic and business performance and, in traditional real estate.
whilst there have been a number of metrics
CHRISTIE & CO
and findings to suggest high street spending
is falling, this may not be the most reliable Our markets continue to function very
method to establish consumer sentiment. As effectively and front end KPIs in transactions,
we move towards online platforms, this looks such as interest and offers received, have
Managing to be the most indicative way of measuring
how people are spending their money.
been robust. However, towards the end of
2018 there has been a slowdown within
Director’s The highly publicised struggles of big chain
the tail end of some deal processes. As we
approach the deadline for a Brexit deal, we’ve
Statement
brands in the casual dining space have cast
seen some caution from banks who are
doubt in the market, however, the issues really
taking longer to provide loans and capital,
stem from oversupply rather than a lack of
causing a domino effect and slowing some
customer demand. Operators who distinguish
completions.
themselves from the crowd and present a
unique offering are thriving, along with those Once we have passed the Brexit deadline, it
who continue to reinvest and innovate. This looks likely that with the clarity this will bring,
is true across all sectors, where being able we will see transaction times return to normal
OVERALL MARKET to adapt, adopt new trends and introduce and in fact possibly a dividend in deals from
relevant technology to improve services the boost in market confidence.
2018 was for some, surprisingly upbeat.
Uncertainty fuelled by ongoing Brexit and cost-effectiveness will see any business Beyond the UK market, our focus continues
negotiations only became apparent prosper compared to those who have failed to to be the growth of our consultancy teams,
in the last few weeks of the year as prepare for the future. which are now working fluidly as a pan-
Parliament failed to reach a consensus. Continued investment into the UK from European operation, providing a more
Nevertheless, we can look towards overseas has consistently shown the cohesive and unique offering for clients on
2019 optimistic that clarity will be attractiveness of our markets, with investors the continent. We have also been building our
provided for the UK as we approach the from continental Europe, US private equity European brokerage services and continue
March deal deadline. There is no doubt and increasingly Israel and the Far East. The to explore export opportunities from Far
we are seeing pent-up demand from level of international interest, capital and East investment into the UK, particularly
investors looking to commit to the UK activity in the UK shows no sign of slowing, in childcare, theme parks and intellectual
once we have certainty. suggesting that the future will be bright property in China.
Generally, the economy has performed for business. Through our Consultancy team, we are
as expected and in fact better than some Sectors based on consistent consumer recognised as the go-to adviser in the
predicted, with many markets remaining demand, such as those Christie & Co works hospitality and healthcare sectors across
robust and the ongoing currency across, are becoming more mainstream and Europe, covering a range of languages,
fluctuations continuing to make the UK increasingly attractive to those looking for a cultures and markets. We look to continue to
attractive to overseas investors. different kind of investment. As advisers with consolidate our teams and ensure a critical
decades’ worth of knowledge and expertise mass of support in our core areas of operation,
Another positive indicator of a stabilising
in these sectors, our teams are in demand to particularly in France, Germany and Spain.
economy is the recent interest rates
increase by the Bank of England. help clients traverse the particular nuances in
4
NAVIGATE, INNOVATE, ACCELERATE
WORKFORCE BREXIT the larger banks, and there is still plenty of
opportunity for funding through smaller
Across our sectors, we’ve picked up on Turning attention inevitably to Brexit,
banks, Funding Circle, angel investors and
two key trends which look to be the most despite much uncertainty and negative
private equity. With huge amounts of capital
topical for operators and investors to be speculation on the outcomes of various
trying to find a home, canny independents
aware of; workforce and of course, Brexit. deal scenarios, we can reasonably expect
should be encouraged, as venture capital
Throughout this edition of Business that once an outcome is known businesses
is increasingly looking to support start-ups,
Outlook, each sector will touch upon the will continue to prosper. Generally,
particularly in hospitality where these are
issues surrounding these themes, potential businesses have continued to trade and
performing well against an oversupply of
impacts and how the sector looks to deal transact successfully, bolstered by solid
casual dining brands. However, competition
with them. underlying market fundamentals, so we see
will continue to be rife across all sectors,
no reason for this not to continue in 2019
Staffing and workforce issues invariably and ensuring underlying quality and a solid
and beyond. If anything, the clarity a deal
differ from sector to sector, but the key concept are key to thriving.
brings will only boost confidence in the
challenges are recruitment and retention,
market. This year’s Business Outlook theme of
with competitive pay driving up staff costs
Navigate, Innovate and Accelerate applies
for many employers. OUTLOOK to how businesses can find their route
The hospitality and care sectors are Looking ahead to 2019, the market will to successful growth. Navigating an ever
grappling most with this, with the current continue to realign itself along with changing landscape to keep up with
nursing shortage and decrease in European consumer demand, and in every sector the political, technological and demand shifts
workers due to uncertain immigration quality businesses moving forward with is vital and this can be achieved through
policy post-Brexit exacerbating matters. future developments are set to continue to innovation and agility. Being aware of the
thrive. New concepts are coming to market market and what needs to be done to meet
Businesses that look after their staff, pay
all the time and with technology evolving, expectations is key to prosperity. We hope
competitively and create opportunities and
the time has never been better to capitalise that this year’s report offers support and
a culture of feeling valued will attract better
on new opportunities in business. insight to allow all businesses across all our
quality people, retain these staff, and in turn
sectors to be prepared for what 2019 brings.
provide a better service ultimately to the There continues to be an abundance of
benefit of the business. capital available despite some caution from
INDEX BASED ON AVERAGE SALE PRICES
From a base of 100 in 2005
140
130
120
110
100
90
80
2005 2012 2018
Hotels Restaurants Care Retail Christie & Co House Price Retail Price
Average Index Index Index
5
Dental Pharmacy Pubs Childcare
christie.com
We anticipate a strong start to the year across
many of our specialist sectors, as transactional
activity and deal pipelines remain resilient.
DARREN BOND We remain extremely optimistic about the Our valuation activity in the medical sector
Managing Director demand for valuation services heading remained strong, with a notable increase
Valuation & Capital into 2019, following resilient trading in activity in the doctor’s surgery sector, as
Markets performance across our markets in the past well as the veterinary and optician markets.
12 months, despite ongoing political and Whilst annual price movements in the
economic uncertainties surrounding Brexit dental and pharmacy sectors slowed from
negotiations. the very strong growth in recent years, the
Valuation ACTIVITY
price movements achieved in 2018 were still
respectable.
& Capital Despite the increase in interest rates to
0.75% in August 2018, the cost of borrowing Christie & Co’s Care Valuation team was
Markets remains at an all-time low, as refinancing
opportunities remain attractive. This has
instructed on a number of valuation projects
including Barchester Healthcare, Choice
led to strong demand for valuation services, Care Group and part of the Accomplish
alongside the increased requirement portfolio. One of the largest advisory
for lending institutions to insist on more assignments undertaken in 2018 was
frequent revaluations. providing Four Seasons Health Care with
strategic consultancy advice on 180 care
The hospitality market, in particular, remains assets, as part of the ongoing restructuring
very active, especially the public house of the group.
and hotel sectors, despite the continuing
pressures of increasing operating costs. The Activity in the retail sector was also strong,
number of pubs closing in the UK has slowed alongside our transactional work on Wyevale
following decades of rapid contraction. Garden Centres. Notably, we undertook
a valuation of a portfolio of almost 350
The cost of Our Hospitality Valuation team has received petrol stations in the UK, on behalf of TDR
borrowing instructions on a number of significant Capital-backed Euro Garages, who were
remains at an national pub portfolios. In 2018, we
concluded revaluation exercises of both the
very acquisitive throughout the year, buying
significant packages of petrol filling stations
all time low, Greene King and Marston’s pub portfolios; in Australia, Germany, Italy and the US.
as refinancing two of the UK’s largest brewers and pub
COST PRESSURES
operating companies with a combined
opportunities 3,500 pubs. We also undertook a valuation Although business rates and increasing
remain of Liberation Group, which owns 115 public energy costs featured less in the headlines
houses including Butcombe Brewery and
attractive. associated unlicensed properties in Jersey,
in 2018, cost inflation along with the
National Living Wage will continue to impact
Guernsey and the South West of England. our markets. Wage costs are the greatest
overhead facing operational businesses and
In the hotel sector, we were instructed the increase in National Living Wage in April
to provide valuations of glh Hotels and 2019 will add to existing pressures, including
RF Hotels, in addition to involvement in a business rates, energy costs and general cost
number of significant hotel portfolios that inflation, all of which continue to compound
transacted throughout the year.
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NAVIGATE, INNOVATE, ACCELERATE
operating costs. The hospitality and leisure The UK and European markets remain Amidst increasing pressures and
sectors continue to be the hardest hit attractive to Asian investors and we have casualties, banks continue to lend more
of our markets, although the healthcare seen strong interest from a number of the cautiously into the restaurant sector, and
sector has also had its challenges, with Singaporean and Asian REITs, all eager while banks remain active in the pubs
pressure from nursing staff shortages and to acquire and develop platforms in the industry, they require a strong operational
the high cost of agency staffing. hospitality and healthcare markets. CV from borrowers in what remains a
competitive market.
CAPITAL EXPENDITURE The ‘alternatives’ market within which we
operate continues to attract investment We are also seeing an increase in ground
The market continues to be reactive
from those who have shifted away from rent transactions as a means of alternative
towards capital expenditure with little
more traditional commercial real estate funding in our markets, and there have
market pressure to heavily focus on
opportunities. Yields in prime European been a number of such transactions in
reinvestment. The stronger economy
capital cities and primary cities remain at most of our sectors, including hotels, care
of the last five years has allowed trading
an all time low, with secondary cities also and leisure.
performance to improve without adequate
generating strong levels of return.
levels of CapEx, but we are starting to see
some assets tire and trading performance
BREXIT
We envisage that the shift towards good
deteriorate as a result of this recent While we await the terms of a Brexit deal
quality assets in secondary and tertiary
underinvestment. Third party feedback at the time of writing, it’s business as usual
cities will be a focus for investors in 2019,
websites will continue to provide a for operators across our sectors. The
as the returns available from primary cities
good barometer of asset quality in the outcome of Brexit threatens to influence
will fall short of investors required returns.
hospitality sector, and we believe that the availability of cheap funding, ultimately
businesses and lenders should increase affecting capital expenditure and value.
their focus on CapEx in 2019.
BANKS AND LENDING
Funding remains readily available from all There is concern about the consequences
CAPITAL MARKETS the main UK lending institutions and the of any delay to the Brexit process, and
expanding number of challenger banks, the time it takes for the UK to negotiate
There has been a continuation of the
who, with their increasing reach, can its exit is likely to impact the confidence
transition in the type of investor active in
provide competitive options for funding. of transactional markets and investor
the UK with a shift away from opportunity
Banks remain active in almost all of our appetite. Assuming an orderly Brexit, we
funds, hedge funds and private equity
markets, albeit there is a real emphasis on believe that our markets should continue
investors with debt positions, who have
a borrower’s operational experience when to perform strongly in 2019.
largely actualised their returns in the UK
considering a new lending opportunity.
and selectively exited our sectors in British
Throughout 2018, banks maintained the
markets in pursuit of stronger returns
strongest appetite for the medical sector,
elsewhere in Europe. This has created
with lenders attracted by the income
a gap for new investors and a return of
security, but remain more selective across
more conventional private equity funds,
the elderly and specialist care sectors, with
alongside a resurgence of traditional
a focus on future-proof, modern quality
sources of European capital.
properties.
MARKET PREDICTIONS
There will be increased Funding will remain readily CapEx and reinvestment
activity in secondary available across all of our will become increasingly
and tertiary locations, markets, with increased critical after many years
as investors seek better competition from the of under-provision.
returns. challenger banks.
7
christie.com
Enduring cost pressures on business, muted
consumer activity and an impending Brexit have
all challenged UK plc in 2018, impacting both
economic growth and business distress.
STEPHEN JACOBS The UK economy grew by just 0.1% in the of distress. This was borne out in 2018, with
Director Bank Support & first quarter of 2018, dramatically below distress continuing on an upward trajectory.
Business Recovery predictions, and whilst the economy showed
stronger performance in the second and A common factor relevant to business
third quarters of the year, growing by 0.4% distress across all Christie & Co’s markets
and 0.6% respectively, real UK GDP growth has been cost pressures, particularly in the
continued to slow. leisure and hospitality sectors, which are
largely driven by discretionary spending. In
CONSUMER CONFIDENCE the childcare and care sectors we have seen
business failures as a result of operators
Consumers have been hard pressed, as
falling foul of their respective regulators due
real wages fail to keep pace with inflation.
to poor management and governance. The
Sluggish productivity and high business
implementation of legislation, such as the
costs have impacted on the ability of some
pharmacy funding cuts and 30 hours free
companies to invest in people, training
childcare has also contributed to business
and technology.
distress and we have consequently dealt
Weak pay growth has subdued consumer with several such cases in 2018.
confidence in household finances, with
In 2018, worries about how Brexit will affect
BREXIT
business purchasing power and job security. Despite the spectre of Brexit, it has been
largely ‘business as usual’ for SMEs across
distress COST PRESSURES most of our sectors. This has been reflected
continued Cost pressures continue to impact operator in our transactional activity, with both
instructions to sell assets and deal flow
on an margins and profitability. Rising rents, a
feature of the current cycle, proved to be remaining steady, indicating continued
upward unsustainable in many cases, and rates were appetite and confidence in the markets.
trajectory. exacerbated by the delayed rate revaluation
to April 2017.
Although the devaluation of the pound
has contributed to the increase in both
The year on year increase in the National staycations and the number of international
Living Wage, alongside skill and occupational visitors to the UK, benefitting the wider
shortages, have driven labour costs upwards, leisure and hospitality markets, a challenge
while the depreciation of the pound has also for these and other sectors hugely reliant
increased input prices for many businesses, on migrant workers is the uncertainty
further squeezing operator margins. surrounding their status in the lead up to
Brexit. The care sector, for example, has seen
BUSINESS DISTRESS a continual fall in EU nurses.
As 2017 came to a close, we anticipated that
Undoubtedly, the UK’s decision to leave the
the increase in business distress we had
EU has weakened economic growth. How
seen during the year would continue, as cost
the economy fares once the UK exits the
pressures and weak consumer confidence
EU is uncertain with much speculation and
endured, with uncertainties over Brexit
differing opinions.
having the potential to exacerbate the level
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NAVIGATE, INNOVATE, ACCELERATE
MARKET PREDICTIONS
The underlying trend We anticipate a A poor Brexit deal or no
of slowing real GDP proliferation of business deal will escalate both
growth will continue. failures where enduring political and economic
cost pressures erode risk, affecting business
profitability, impacting the investment decisions
availability of investment and consumer confidence
required to maintain with the potential to
operator standards exacerbate business
and succeed in distress.
competitive markets.
BUSINESS DISTRESS – 1 BUSINESS DISTRESS – 2
Percentage of distressed assets Distressed assets instructed by
instructed by sector in 2018 appointment type in 2018
4% Childcare & Education 5% Receiverships
7% Restaurants 5% Liquidations
8% Medical 27% Administrations
13% Hotels 63% Consensual
14% Retail
15% Pubs
39% Care
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christie.com
SCOTLAND
Brian Sheldon, Regional Director – Scotland
Transactional activity across the hospitality market
remained stable in Scotland throughout 2018,
with notably increased activity in the freehold
pubs market and the independent hotel sector
in strong tourist areas. The medical sectors were
characterised by strong demand and competitive
prices in 2018. Stable Government funding in the
pharmacy sector influenced strong interest and
although supply is expected to remain limited,
prices are expected to cool. We will continue
to strengthen our position in the increasingly
competitive dental market, with a significant
pipeline for 2019.
NORTH WEST
Nick Brown, Regional Director – North West
Manchester is seeing a construction and
infrastructure boom with a range of residential
and commercial developments, which has been
fueled by larger employers now moving their
headquarters to Manchester where London may
have been their first choice. There are still plenty of
challenges across a variety of sectors but an overall
theme of robust growth is prevalent, and appetite
from buyers to acquire is strong.
SOUTH WEST & WALES
Rob Kinsman, Regional Director – South West
& Wales
Transactional activity remained strong in 2018
with increased demand from both domestic and
overseas investors seeking opportunities to create
upside and add value. The weakened pound and
low interest rates continue to attract an array
of international buyers seeking a UK hospitality
footprint, and we expect demand to continue into
2019. The care sector has seen an increase in new-
build activity across the region, which we predict
will continue at pace, while appetite continues to
exist for converted care homes in smaller, often
more affluent towns, where new builds are not
considered viable.
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NAVIGATE, INNOVATE, ACCELERATENORTH EAST
David Lee, Regional Director – North East
The North East market in all sectors remains busy,
demonstrated by our viewing and offer numbers,
which increased by 12% and 25% respectively from
2017 to 2018. Tourism in Northumberland and
Yorkshire continues to thrive with the increasing
trend of staycations benefitting the hospitality
sector, plus the comparatively cheap price of
property in the region is attracting more investors
across all types of business.
MIDLANDS & ANGLIA
Lee Howard, Regional Director – Midlands & Anglia
Investment in the Midlands, and Birmingham in particular,
is at a record high with recent major development
schemes. This is set to continue, with global businesses
moving in and more office space being constructed,
bolstering the retail and hospitality markets and driving
more tourism to the region. In 2018, we saw a record year
for healthcare transactions, whilst other sectors continue
to perform well.
In East Anglia, the care market remains strong, and
the licensed and leisure sectors have benefitted from
increased tourism to the region, with 65% of businesses
surveyed by Visit Norfolk reporting an increase in visitor
numbers in 2018.
SOUTH
Ed Bellfield, Regional Director – South
Despite headwinds, the South saw significant
transactional growth throughout 2018, surpassing
2017 levels and culminating in the highest income
year since 2007. The care sector has experienced
substantial growth and demand will continue to
outstrip supply in 2019. Hospitality will see the
greatest opportunities to improve occupancy
and revenue, although the casual dining market
may struggle as competition and increasing costs
continue to impact upon the high street.
11
christie.comAppetite for lending remains strong across our
specialist sectors, with growing opportunities for
alternative lenders to enter the market.
JOHN MITCHELL Despite some hesitation from traditional TEAM
Head of Business Mortgages high street lenders to lend into certain
The Business Mortgages team has engaged
sectors associated with increased risk, the
with over 40 lenders over the past 12
current lending market remains diverse and
months, with a similar number affiliated
continues to expand as new lenders identify
with the Unsecured lending team. We look
alternative offerings.
to further develop our corporate offering
Christie As demand to borrow money grows
alongside the popularity of challenger banks,
by providing senior debt facilities and
mezzanine finance for private equity funds
Finance new lenders and FinTech platforms can
capitalise on the emerging opportunity to
and corporate operators.
We delivered a 30% increase in offers
provide niche offerings.
secured across the business compared to
Requirements for funding remain consistent the prior year. The Unsecured division has
and funding remains readily available for well successfully traded throughout their first
run, quality businesses, which is reflected full year, with growth set to continue into
in the number of traditional lenders we 2019. We will also be launching a dedicated
continue to engage with, as well as the Commercial Investment Property division,
increasing number of offers from challenger which will offer our expertise and quality of
banks we have received throughout 2018. services to the rapidly growing real estate
We delivered a The childcare, education and medical
investment market.
30% increase sectors continue to be well supported by With the team set to expand in 2019, Christie
lenders, while the care sector has witnessed Finance continues to work closely with
in offers an increasing volume of traditional lenders Christie & Co, enabling greater penetration of
secured across diluting appetite for small care homes, opportunities across the Christie Group.
the business despite plenty of support for larger, purpose-
built homes. Lending criteria for first-time
BREXIT
compared to the buyers in the care sector has significantly We have not witnessed any immediate
prior year. tightened. impact or suggestion that Brexit will directly
affect the commercial lending market.
In the hospitality sector, lenders are more Despite potential to negatively affect
likely to fund multiple hotel operators, the wider economic market, we remain
whilst funding remains more challenging optimistic as demand for businesses to
for small single asset pubs and restaurants. borrow money remains strong. Access to
Established banks and alternative lenders are competitive funding may become difficult
designing innovative lending products and depending on the deal agreed, meaning the
criteria to address the needs of the market. services of a specialist finance broker may
become ever more prevalent.
12
NAVIGATE, INNOVATE, ACCELERATECyber insurance should now be a top priority for
businesses. It is estimated that billions of losses
have occurred worldwide.
WALTER MURRAY OUTLOOK FOR 2019 however, any companies with claim activity or
Managing Director recent incidents will have higher premiums.
Despite what insurers would describe as
Additional cyber resources and notification
a ‘challenging rating environment’, i.e. the
services are critical factors that should be
premiums they are charging are less than
considered when arranging cyber insurance.
their preferred premium, new capital remains
attracted into the global and UK insurance Employee awareness of cybersecurity
Christie markets limiting any premium growth, though
there will always be certain sectors that may
remains critical in any business. Investing in
technology is important, effective cyber risk
Insurance not fall within this positive outlook. Global
insured catastrophes, such as Storm David in
management should begin with educating
employees, particularly as a large majority of
Europe and historic fires in California, have all cyber incidents are a direct result of employee
impacted the UK insurance market, however behaviour.
global losses to date are lower than they have
been in the past decade. Insurance coverage will evolve to address
regulatory risks relating to the recent changes
UK insurers with any significant business in GDPR. Although there have not been any
across the EU borders have prudently planned substantial fines or penalties relating to
for a ‘hard’ Brexit, having redomiciled parts of GDPR, we anticipate an increase in claims
The outlook for their business within the EU. activity given the complexity of the
the insurance Major issues impacting our clients
regulations imposed.
industry in include cyber insurance, terrorism and
underinsurance.
TERRORISM
2019 is set to Terrorism is a prevalent concern for most of
CYBER INSURANCE us, not just with the possibility of damage to
be positive assets, injuries to employees and customers,
Cyber insurance should now be a top priority
providing there for businesses. It is estimated that billions of
but also an interruption to the profits of a
business as a result of, for example, police
are no material losses have occurred worldwide due to global
quarantining areas until an attack has been
ransomware and cyber extortion; this figure
changes excludes the fallout from recent events at
contained as seen in The Mill Pub and Zizzi
restaurant in Salisbury earlier this year. Fear
based on a Marriott Hotels.
of travelling will also impact those in the
growing supply Insurers look closely at an organisation’s hospitality sector.
outpacing the risk profile, identifying those that have not
UNDERINSURANCE
addressed their cybersecurity vulnerabilities.
current demand These companies will find themselves with Underinsuring a business remains an issue in
for insurance. an inability to find insurance with reasonable all sectors. At the point of claim, which is often
terms. As we have witnessed with the too late, it becomes clear that clients have
NotPetya and WannaCry attacks, midsize not addressed the correct rebuilding cost of
companies are prime targets for cyberattacks their buildings and have underestimated the
due to a lack of resource and protocols in place. time required to restore a business to its
pre-loss revenue.
Cyber insurance premiums should remain
stable and capacity aligned with demand, 13
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NAVIGATE, INNOVATE, ACCELERATE
MEDICALOur two largest Medical sectors, Pharmacy and
Dentistry, performed well in 2018 and we report
price increases in both, albeit at significantly lower
rates than previous years.
SIMON HUGHES DENTAL MARKET OVERVIEW As the UK market matures, larger
Managing Director companies might begin to explore expansion
2018 saw a noticeable shift in demand
Medical opportunities in European countries,
towards the private dental sector, driven
following the lead of Jacobs Holding,
by the challenges NHS operators face in
the first to own multiple portfolios on a
recruiting and retaining associate dentists.
pan-European basis.
While NHS dentistry is still considered highly
Consultancy attractive for many entering the sector, there
is now greater sensitivity in relation to UDA
WORKFORCE CHALLENGES
Our recent market report, The Dental
performance.
Industry 2018, shows operators are
The continued lack of supply of quality increasingly concerned about the availability
dental practices has underpinned prices, of specialist skilled workers. The private
particularly in the higher price ranges, and pay market will continue to attract new
the growth in the number of smaller dental associates, and urbanicity will increasingly
companies has increased demand for contribute to a surplus of dentists in urban
larger practices, where greater economies settings whilst worsening the shortage
of scale can be realised. Banks continue to of dentists in rural areas, placing upward
Banks continue demonstrate good appetite for dentistry pressure on pay scales in NHS dentistry.
and consistently low levels of impairment Most importantly, operators will need to
to demonstrate confirm the industry is a relatively safe haven accommodate emerging workforce trends
good appetite for investment. to attract associates, for example through
flexible working, while also maximising the
for dentistry and CORPORATE ACTIVITY AND skills of hygienists and therapists, allowing
consistently low MARKET CONSOLIDATION associates to perform more advanced
levels of impairment The sector continues to consolidate, dentistry, driving income.
although, with only an estimated 12% of
confirm the industry BREXIT
practices in corporate ownership, the market
is a relatively remains highly fragmented. Brexit is inextricably linked to recruitment
safe haven for The sector enjoys huge interest from private
and retention in the dental workforce.
The number of EEA registered dentists fell
investment. equity investors, and as we move into for three consecutive years from 2014 to
2019 there are likely to be further platform 2016, finally stabilising in 2017. Whatever
transactions in the lower and mid-markets. exit terms are agreed should stabilise the
number of dentists leaving the UK but more
However, deal volumes are hampered by
importantly, the Government should aim to
suitable ‘platform’ opportunities and a lack
welcome skilled dentists and immigration
of quality management teams. To mitigate
barriers should be reduced for dentists who
the lack of supply, we are seeing a number of
qualified outside of the EEA to attract more
smaller investment houses targeting large,
dentists to the UK workforce.
single practices.
15
christie.comDemand remains strong across the major
conurbations, evidenced by strong offers and
rising multiples of profit.
TONY EVANS PHARMACY MARKET OVERVIEW agreed a further clawback of £50 million, but
Head of Pharmacy it is hoped that its completion in March will
2018 saw more pharmacies come to the
put an end to clawbacks based on historic
market in England, largely driven by the
over-performance.
combined ongoing impacts of the DHSC
funding cuts, the Category M clawback, Optimistic about a more supportive
and supply and pricing issues, despite settlement for 2019/20, we anticipate that
some closures. In the more stable funding buyer confidence in 2019 will remain at
environments of Wales and Scotland, similar levels to those witnessed in 2018.
relatively few pharmacies changed hands,
and where opportunities did come to DISPENSING AND SERVICE
market, competitive interest was generated, ACTIVITY
driving premium prices. Analysis of the NHSBSA dispensing data
for 2017/18 shows that average monthly
Buyer profiles continued to evolve as the
dispensing remained relatively static to prior
market saw a lull in appetite from larger
years at c. 7,300 items. Many contractors
multiple and corporate operators, which led
failed to fully capitalise on service income
to a shift in activity towards smaller multiple
available through Medicine User Reviews
operators, more independent contractors
(MURs) and the New Medicines Service
and first-time buyers. In 2018, we saw an
(NMS). On average, contractors lost out on
Buyer profiles 11% increase in the number of pharmacy
an estimated £3,200 of MUR income and
applicant registrations, and the breakdown
continued to in buyer type has remained relatively
depending on payment thresholds achieved,
£9,000 of NMS activity per pharmacy, with
evolve as the consistent with around 80% of buyers being
independent contractors fairing the worst.
market saw a lull either first-time buyers or new entrants to
the market. BREXIT
in appetite from
larger multiple GOVERNMENT FUNDING Having already reported a reduction in the
number of EEA and overseas pharmacists,
The largely anticipated announcement that
and corporate any further reduction may result in a
the 2018/19 global funding settlement for
operators. England would remain virtually unchanged
shortage, which could increase wages and
cost pressures. Additionally, should the
was met with disappointment. The
Brexit deal agreed disrupt or completely
announcement indicated operators would
sever free trade, the supply of drugs could be
face increased cost pressures associated
severely affected, leading to price increases.
with the implementation of the Falsified
Discussions have already pointed to the
Medicines Directive in February 2019, the
potential stockpiling of drugs to mitigate
three-pence reduction in the Single Activity
the disruption of supply. The value of the
Fee and further increases in the National
pound following Brexit could also potentially
Living Wage.
increase the cost of imports, contributing
Following a brief respite after the 2017/18 to cost pressures on drug suppliers and
£180 million Category M clawback came to ultimately retail pharmacies.
an end in July, the PSNC announced it had
16
NAVIGATE, INNOVATE, ACCELERATECASE STUDY CASE STUDY
Caledonian Dental Care, Perth J G Clifford Dispensing Chemist,
Cambridgeshire
Christie & Co brokered the sale of
Caledonian Dental Care, Scotland’s Christie & Co sold J G Clifford
largest dental practice, comprising Dispensing Chemist, a well-established
two large practices with a total of 19 community pharmacy in the town of
surgeries. Established in 1947, with the second practice Godmanchester, on behalf of a small multiple operator as
purpose built in 2009, the practices are two of the busiest part of a strategic divestment. Generating nearly a dozen
in Scotland, with approximately 40,000 registered patients. offers, the pharmacy was sold to a first-time buyer.
Sold in excess of the asking price, Caledonian Dental Care
was acquired by Portman Dental Care, marking its sixth
acquisition in Scotland.
DENTAL MARKET PREDICTIONS PHARMACY MARKET PREDICTIONS
Corporates will The market The first half of the Buyer appetite
divest non core will become year will remain in the pharmacy
practices into increasingly challenging sector will
the independent quality driven. through the largely mirror
sector. completion of that seen
the Category M in 2018.
clawback in March.
2016 14.9%
2017 12.3%
2016 12.0%
2017 8.1%
2018 5.2%
2018 2.8%
Dental Pharmacy
Movement in average prices, year on year
17
christie.com18
NAVIGATE, INNOVATE, ACCELERATE
CAREThere is a lot to be positive about in the care sector
despite the challenges highlighted in our latest
Adult Social Care report.
RICHARD LUNN Investor interest and opportunities have Location and demographic factors continue
Managing Director continued to grow in the past year and to influence the value and performance
Care market demand looks to remain strong for of care settings and the attractiveness of
the year ahead. investments, with the South East of England
maintaining leading levels of supply and
INVESTMENT & ACTIVITY demand. Many other regions still have an
Although still a highly fragmented market undersupply of market standard beds and
Consultancy with some strong local independent
provision, competition for prime sites
competition is most relevant on a localised
market basis, as operators predominantly
has increased. Significant corporate focus on building in locations with more self
development activity has put pressure on funded residents rather than those reliant on
some smaller operators, as regulators and local authority fees.
operators focus on the quality of operations
as well as the physical environment.
FACING OPERATIONAL
CHALLENGES
Diverse global capital providers now consider The key challenges facing operators relate
healthcare a favourable investment class, to staffing, funding and a tougher regulatory
generating a greater range of buyers and
Diverse investors than ever before. Previously
environment. As highlighted in our Adult
Social Care 2018 report, there is a deficit
global capital defined by entrepreneurial individuals and of 20,000 nurses currently in the UK, and
providers family run businesses with traditional debt, with a 13% drop in nurse registrations in
the market now sees capital from private
now consider equity providers, international real estate,
2018, the availability of nurses looks set to
shrink further. Staffing has been a constant
healthcare and infrastructure funds, amongst others. focus for operators who are developing
a favourable DIVERSE MARKETS programmes to recruit and retain
trained staff.
investment The care market continues to consolidate
class, with a reduction in the number of homes, Agency staffing costs continue to affect
despite the number of beds increasing many operators, who will inevitably look to
generating a offset these costs with increases to private
overall. This reflects the shift in market
greater range standards, where smaller, nonviable assets fees. However, these increased costs will still
of buyers and are closing and being replaced with larger, significantly impact profitability.
new build developments which provide
investors than greater economies of scale.
BREXIT
ever before. As a needs-driven market, Brexit is unlikely
Variance of homes and beds to bring any substantial, new issues to
between 2016 and 2018: the care sector, however, it could exacerbate
-2.1%
existing challenges particularly around
workforce.
Homes:
Beds: +2.0% 19
christie.comCASE STUDY CASE STUDY
Andover Nursing Home Croftbank House and Rosepark
Having been instructed on the sale In October 2018, Christie & Co sold two
of the substantial, 87 bed Andover purpose-built homes, Croftbank,
Nursing Home in Hampshire, a 68-bed home, and Rosepark, with
Christie & Co undertook a confidential 58 beds across two buildings,
marketing campaign on behalf of to Impact Healthcare REIT for a
the owners, two brothers who were looking to retire having combined £11.6 million, reflecting a net initial yield of 7.6%.
operated the home for the past 16 years. The business Impact entered into a lease on the two settings with Scottish
garnered a high level of interest resulting in several group operator, Renaissance Care, bringing their portfolio
competitive bids and was ultimately sold to a growing local up to 14 homes with almost 700 beds and 1,000 members
group operator, Andover Care Ltd, in May 2018. of staff.
MARKET PREDICTIONS
The care sector Quality still remains We predicted the sale
still awaits the the key driver of of a major OPCO in
Government’s Green value and operational 2018 – this is still yet to
Paper into the future effectiveness – we be achieved but likely
of funding of social will see continued in 2019, along with
care which was due in regulatory pressure on further consolidation of
2018. This could have all operators to improve quality providers.
a significant impact services.
on the sector upon its
publication.
2014 9.8%
2017 6.1%
2016 5.0%
2015 4.7%
2018 3.1%
Movement in average
prices, year on year
20
NAVIGATE, INNOVATE, ACCELERATE2018 was a ground-breaking year for the team with
two major research reports launched and record
demand for our consultancy services, particularly in
terms of commercial due diligence, market studies and
development advisory mandates.
MICHAEL HODGES 2018 saw a number of new well funded Along with the care sector, the pharmacy
Managing Director investors enter the sector, significant activity and dental markets are also growing with
Healthcare Consultancy in relation to major M&A processes and a the development of new technology. A key
very active development market. development in the pharmacy sector is
the move towards electronic prescriptions
GROWING INTEREST AND through EPS 4, whilst dental practices are
INVESTMENT capitalising on consumer demand to offer
Consultancy The need for care services is continually cosmetic surgery procedures as well as
traditional dental care.
- Healthcare
growing, as people live longer with an
ever-increasing range of health conditions.
These demand drivers are fuelling interest
CARE CHALLENGES
in the sector from a growing range of In the care sector, operators of smaller
investors. Interestingly, many institutional converted homes reliant on local authority
funds are now actively targeting healthcare funded clients are finding trading conditions
investments given difficulties in other to be challenging, with these pressures
parts of the property market. Healthcare exacerbated by demands imposed by
is now becoming much more mainstream, regulatory bodies and staff recruitment
Healthcare is which is evidenced by the way yields have challenges. Across the sector, the two main
compressed for prime stock. pressure points relate to local authority
now becoming funding and staff recruitment, particularly
much more The need for high quality, future fit provision the supply of trained nurses where, as our
has also fuelled a substantial amount of
mainstream, new development activity, with 2018 being
recent Adult Social Care report has shown,
uncertainty through Brexit has had a
with this a record year in terms of our development particular impact.
evidenced advisory and brokerage activity.
BREXIT
by the way Most of the new developments are targeting
the private pay market with developers and Care is a needs-driven sector with the
yields have operators continually looking to evolve the workforce being a vitally important
compressed for product offering in terms of specification and component. The key risks which may arise
prime stock. the use of technology. from Brexit relate to the supply of labour, cost
of materials, and overall market confidence,
TECHNOLOGY particularly in the investment community.
Technology is being used in a number of Concerns over the supply of labour stem from
areas, including care planning, resident the fact that since the Brexit vote, there has
experience enhancement and health been an 87% drop in EU nurse registrations
monitoring, and we anticipate this to since 2016. With our latest research showing
continue in the future, as operators aim to that the shortage of nurses is continuing to
improve the service experience, efficiency increase, operators are now having to source
and patient safety. more overseas nurses whilst employing other
strategies, such as upskilling care assistants to
assist with basic nursing duties.
21
christie.comCHILDCARE &
EDUCATION
22
NAVIGATE, INNOVATE, ACCELERATEPart of an ever-growing sector, many businesses
yielding high earnings have seen increases in value,
driven by continued attraction to investors and eager
competitiveness from buyers teamed with their thirst
for high quality.
COURTENEY Our Childcare & Education team has seen The development of new ‘future proofed’,
DONALDSON unprecedented prices for quality businesses purpose designed settings are undoubtedly
Managing Director achieved over the past 12 months, albeit placing additional pressure on existing,
Childcare & Education such may level out during 2019. While a very smaller operators. The past year has seen a
positive year for some, the past year has rise in nursery closures, particularly among
presented a divergent landscape and we the smaller, less commercial, least well
expect the disparity between success and funded and less viable businesses.
Consultancy distress to widen during 2019.
Research by NDNA revealed a 66% increase
INVESTORS AND in closures between September 2017 to
OPPORTUNITIES 2018, attributing this to the introduction of
the 30 hours of free childcare policy. As of
High quality single assets remain very much
September 2018, 88% of eligibility codes for
sought after by first-time buyers, existing
30 hours free childcare have been validated,
providers and new, prospective investors
showing that the majority of the impact the
alike, as the sector is increasingly being seen
policy has had on the sector has occurred.
as an attractive investment class, offering
scope for solid long term earnings and
The premium success.
prices being
achieved by the
The premium prices being achieved by the
most desirable businesses throughout 2018
88%
could potentially continue into 2019 as we
most desirable of eligibility codes for
see an eager pool of new buyers continuing
30 hours of free childcare
businesses to emerge.
validated by September
throughout Established and well-performing portfolios 2018
2018 look likely are expected to remain attractive to
regional, national and international groups A growing trend has been the increasing
to continue into and investors. Consolidation opportunities introduction of full day care provision on
2019 as we see remain, with existing providers and new primary school sites. Maintained sector
entrants increasingly looking to pursue nurseries in many cases have historically
an eager pool growth development strategies, via both been in receipt of higher local authority fee
of new buyers acquisitions alongside organic development. rates, in comparison to rates awarded to the
continuing to CHILDREN’S DAY NURSERIES
private sector, we have seen an increase in
school-based provision.
emerge. Still a highly fragmented market, with around
As owners strive to differentiate their
80% of settings owned by independent
business from others, USPs, such as
operators, UK based children’s day nurseries
enrichment services, bilingual curriculum
continue to see inbound investor interest
and cutting edge technology, are becoming
which has, in turn, driven up values, fuelled
increasingly more prevalent.
by competitiveness in the market.
23
christie.comFixed costs continue to increase year on an aspirational vision to create a fully
year for staffing, operations and business inclusive education system for children
rates, so warranting sustainable fee rates and young people with SEND is being
and increasing operational capacities are USPs, such as realised. Riverston School, the first of its
potential routes which could be taken to enrichment kind specifically catering for students
mitigate or offset sustainability pressures. with specialist needs or as referenced by
services, bilingual the regulator, Children of Determination,
INDEPENDENT SCHOOLS curriculum and opened in Dubai in 2018.
The landscape for independent schools cutting edge BREXIT & POLITICAL CHANGE
is mixed, with private ‘for profit’ schools
typically falling into one of three groups.
technology, While a weaker pound may fuel inbound
The elite and prestigious private UK schools are becoming activity from overseas investors, domestic
have been able to maintain high occupancy increasingly more opportunities may be impacted as UK
and school fees, assisting in offsetting owners or investors will seek to divest risk.
increasing operational costs. prevalent.
Across the childcare and education sectors,
However, mid-market schools located in there may be some challenges with visa
pockets of London, the South East and issues impacting staff supply or a reduction
Home Counties are having to become in consumer supply in some instances.
increasingly commercial in order to ensure
a healthy financial operation and ensuring Aside from Brexit, in the event of a snap
profitability with necessary financial election, the effect of a potential change
reserves. in government, including changes to the
Children’s homes, in particular, look set to funding system, regulatory policy and
The private independent schools which see capital value growth during the year operational frameworks, could be the
are most at risk are those located outside ahead. With local authorities beginning greatest challenge.
of London and the South East, with to increase their referrals back toward
significant erosion in pupil numbers and children’s homes, there is a significant
little capital to reinvest. We anticipate shortage in supply, and this is expected
increased evidence of distress during 2019 to fuel demand from business property
for this cohort of schools as costs rise and buyers during 2019.
surpluses decrease.
SPECIALIST CHILDCARE
2017 10.8%
Distressed assets aside, we expect the
Trade and investor interest has continued
2016 9.7%
independent school market to remain
unabated during 2018, as businesses that
strong and activity is anticipated to gain
2018 8.0%
provide specialist care and education
pace especially across mid-market
for children and young people continue
pricing points of between £5 million and
to draw interest from a wide pool of
£50 million.
acquisitive buyers. Alongside this, organic
LOOKED AFTER CHILDREN AND new business developments have been
YOUNG PEOPLE evident, with, amongst many others, 2018
seeing the opening of Brookways School
Children’s homes and foster care in North Cheam, adding to the Keddleston
businesses are continuing to see high levels Group’s portfolio of specialist day and
of activity as the fragmented nature of the residential schools.
market provides a variety of opportunities
Movement in average
for trade buyers and investors alike, with Overseas, against the backdrop of
prices, year on year
demand continuing to outstrip supply. the Dubai Disabilities Strategy 2020,
24
NAVIGATE, INNOVATE, ACCELERATEJANUARY 2018
CASE STUDY CASE STUDY
Yellow Dot & Mace Montessori, Project Queen, UK
UK
A key transaction in the Specialist
Christie & Co brought both Yellow Childcare sector, Christie & Co
Dot and Mace Montessori portfolios was instructed on the portfolio sale of
to the market in 2018, which were seven residential children’s homes
Project Regal subject to competitive processes and a specialist school, located
and extensive offers from a host of UK, European and wider across the Midlands and East Anglia, by Direct Care Ltd.
international buyers from across Asia, Hong Kong and China. The group, a mix of freehold and leasehold, maintained an
Multiple portfolio sales have been brokered by the team this
I N F O R M AT I O N M E M O R A N D U M exceptional reputation and gained substantial interest from
year, but these two transactions are especially noteworthy a range of regional and national operators when brought
due to the volume of offers presented by carefully vetted to the market, demonstrating the high demand for these
potential buyers in an off-market process, and the premium types of businesses. It was ultimately purchased by Keys
tone of offers received. Group, a leading provider of innovative care and education
services for children and young people with complex needs.
MARKET PREDICTIONS
We predict that we Quality UK single Demand for UK
will see a marked nursery settings residential schools
increase in and portfolios with for children and
independent school solid sustainable young adults with
closures during earnings will remain SEND will remain high
Q1 & Q2 2019, notably sought after, but the and the children’s
in relation to schools sector will become residential care market
located outside of increasingly divergent will increasingly
London and the South with the void between strengthen, as demand
East. Particularly with successful, stagnant continues to exceed
the Teachers’ Pension and failing businesses supply. Foster care
Scheme contribution widening. Additionally, businesses, especially
rate increase from we expect to see those with access to
16.48% to 23.6% from further competition large cohort family
September 2019, as more school-based placements, will also
this will be a further providers presently continue to attract
and potentially final offering reception premium prices.
blow for many already classes extend into
struggling with full day care provision,
sustainability. coinciding with
the new Education
Inspection Framework
implementation due in
25
September 2019. christie.comRETAIL
26
NAVIGATE, INNOVATE, ACCELERATEMajor M&A activity is likely to create plenty of
opportunity across the grocery, convenience and
petrol filling station markets, particularly if any
subsequent divestment of stores is needed.
STEVE RODELL
Managing Director
Retail
The proposed merger of Sainsbury’s and The collapse of Conviviality in 2018 led
Asda is arguably the biggest story of 2018, to wholesaler Bestway acquiring its
along with some other substantial groups, convenience brands Bargain Booze and
and if it goes ahead could provide significant Wine Rack for £7.25 million. We expect that
Consultancy new acquisition opportunities for a range
of buyers.
along with this consolidated group there will
be several other acquisitive parties in the
market, together with retailers ‘churning’
CONVENIENCE their portfolios.
The convenience sector, including petrol
stations, continues to account for over a fifth
PETROL FILLING STATIONS
of the overall grocery market and is only set After years of divestment, oil companies
to strengthen, showing an average of 4% look set to shake up the petrol filling
compound annual growth. Site ownership station market in 2019. We could see a
continues to be dominated by independents, rash of activity from returning buyers such
who make up 31% of the market, usually as Phillips 66 (Jet) and Certas Gulf. Prax
trading under and supplied by a symbol Petroleum (Harvest) set the tone for oil
We expect that brand. This fragmented market allows and company investment in 2018 by acquiring
there will be encourages a steady stream of activity HKS. All are likely to increase purchasing
several acquisitive by both corporates and independents to activity in 2019.
be maintained.
parties in the Margins look set to improve for fuel retailers.
Reinvestment is a key theme amongst Following consistent crude oil price growth
market, together
business owners, with £814 million spent since January 2016 after a period of industry
with retailers in the last year. Freehold tenure is therefore oversupply and pump price discounting by
‘churning’ their favoured by independent buyers, as they the oil companies, we anticipate that the
can improve sites to increase revenue, gap between pump prices and oil prices
portfolios. reduce costs and enhance profitability, will again widen, based on crude oil price
ultimately boosting value. Whilst there forecasts for the next few years.
is some expansion in medium sized
groups looking to consolidate, generally Christie & Co brought Cornwall Garage Group
single-site transactions continue to to the market in the autumn of 2018, and
dominate the market. this has been a good market bellwether.
Interested buyers included both domestic
operators of all sizes and overseas investors
£814m
seeking a foothold in the UK.
spent on reinvestment in
convenience retail in 2018
27
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