At last, after what has felt like the nursery sector’s very own 18-month-long winter of discontent, it seems that nursery operators have grounds for optimism once more.

It felt to me that last year many operators had decided to sit tight and see what might happen next. Now, from what I have seen over the last couple of months, the larger operators are taking the opportunity both to tidy up their balance sheets and to go on the acquisition trail. This burst of exuberance among the largest players in the market is being matched by improving profitability once more for many operators, large and small.

The first business I was – and still am – involved with, is a building company. Running such a company present some interesting challenges for the workload is hard to predict and comes in very large chunks, so you are almost always either too busy or too quiet. Clients are mistrustful, often rightly so, because building things is difficult and mistakes are made. You have to fix your price months in advance, then watch as the cost of material and labour rise. Finally, you have to pay everyone monthly but most wait for what seems like forever for you’re your client to pay you. And it rains a lot, and building things means working largely outside. Small wonder then, that when I opened my first nursery in 1997, I liked the nursery business so much better.

A well-run nursery is a place where both fees and staff salaries, which represent most of your costs, are set once a year – so it is easier to keep one in line with the other. People continue to have babies even during a recession, so demand for our product should be stable. Indeed, to some extent, when times are hard people may need childcare even more, since in more cases both parents in a two-parent family may have to work.

Also, your staff are all in one place, where you can praise their strengths and coach them on their weaknesses on a daily basis. Competition cannot take you by surprise, since it takes a long time to develop a new site for a nursery, and finding such sites on our crowded island is difficult. And best of all, if you have set up a direct debit payment system, you get paid in advance every month.

I think these fundamentals have attracted so many individuals to move from other areas into nursery management over the last decade. And it is these fundamentals, which one private equity guru described to me as “the magic formula – an asset-backed (he was talking about the nursery building) service business”, together with the enticing chance to consolidate a hugely-fragmented sector, that have attracted so many venture capitalists and private equity houses to invest in the sector over the years.

Yet had you spoken to most operators and many private equity representatives last year you might have believed there was to be no pot of gold at the end of the nursery rainbow. Operators were in a sombre mood. It felt as though their natural optimism had been submerged under the weight of negative sentiment towards the sector following some well-publicised issues in a few nurseries, and that their confidence in their businesses had been buffeted by the onslaught of “unfair” competition from Neighbourhood Nurseries and children’s centres.

But now it feels as though that recognition of the fundamentals that made this sector attractive all along is beginning to return. Many operators are reporting strong and improving cash flows, and improving occupancy once again.

Indeed, the decision by the private equity house Alchemy Partners to put Just Learning up for sale shows that some very clever people in the city think that there is a good appetite for day nursery businesses from potential investors. The price tag of £80m, as reported by the Sunday Times, also shows how much a large and successful day nursery group can be worth.

The sale was announced just before Just Learning hit a rough period when a baby died at its Cambourne nursery and a Careshare setting in Dunfermline owned by the group was closed following an outbreak of E-coli. As a result, the sale process for the group has been put on hold, probably for some time.

But while any death in a nursery is a tragedy, I think the sector could do no more to get the message across about how safe the nursery environment actually is for the more than 400,000 children cared for in nurseries every day. The reason the death of a child in a nursery is reported so widely is, I think, partly because it happens so rarely. This is an important point that the sector must try harder to communicate with parents and the media.

The rest of this year will see much more corporate activity, in terms of mergers and acquisitions, compared to 2005. Several things will drive this – the perhaps unrealistic expectations as to the value of their businesses that some operators built up three or four years ago have cooled since then, so asking prices for nursery businesses as a multiple of profits have dropped by perhaps 20 per cent over this period. Also, after a tough couple of years trading, more operators are also ready to “cash in their chips”, so would-be buyers have a greater range of nurseries and nursery groups to choose from.

And the largest groups in the market, who will ultimately drive the consolidation of the sector that is going to be a continuing feature for some years yet, are not only in better shape financially and in terms of management expertise, but are also ready to pick up the consolidation baton once again.

As to who will be buying and who selling, that is for another day.

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