Trucking with toddlers: Sir Peter Thompson

AFTER BBC's Panorama used hidden cameras to expose inadequate care at a private nursery last month, the nursery was firebombed. Passions run high over the places where parents leave babies as young as six weeks in care for up to 10 hours a day.

But all that seems a very long way from the wholesome, if not exactly peaceful, scene in the garden at Meadow View Nursery in Newport Pagnell, Buckinghamshire. As the proud owner, former trucking tycoon Sir Peter Thompson, poses for a photo with the toddlers and their toys, little Oliver yanks the steering wheel off a plastic car, Alice runs off yelling, Katy disappears, and rain clouds threaten to drive everybody back indoors. Joyce Grenfell would have felt at home.

Sir Peter is the grandfather of the management buyout, the man who made himself and many of his workers rich when he led the flotation of the formerly state-owned transport company, National Freight Corporation, in 1989. He personally made several million pounds from the buyout.

He subsequently tried and failed to rescue British & Commonwealth and is currently deputy chairman of Wembley, the heavily indebted company that owns the London stadium. His venture capital investments have included electronic publishing, software, private hospitals and now Child Base, an expanding chain of nine private day-care nurseries into which he has put pounds 400,000.

He is Child Base's non-executive chairman, and his son Mike, who has invested pounds 170,000, is managing director. Mike, 32, who spent five years at NFC, used the proceeds of his own NFC shares and an increased mortgage against his house to invest in Child Base. 'The old man didn't just give me a bit of his money and say here's some for you,' he says somewhat defensively.

The Thompsons are hardly the first to have spotted the potential of the 521,000 families with one or more pre-school age children and mothers working full time, plus nearly another million with mothers working part time.

In America, big chains, such as Kinder Care, with 1,200 nurseries, already exist. But here, there is everything to play for.

Child Base started out in a converted barn, but Sir Peter soon became convinced that purpose-built nurseries were required. Toddlers need a room to themselves or they poke beads up the babies' noses. The place has to look cheerful to help soothe parental guilt. And as the whole set-up is regulated down to the last Lego brick by council social service departments, most recently under the Children Act, building to order makes sense, Sir Peter says.

The construction programme began in 1989 in Milton Keynes. Companies facing staff shortages wanted to be able to offer subsidised nurseries as a perk. But by the time the nursery was built, the same staff were being laid off. So the company has moved into partnership with local authorities and hospitals such as Guy's in London, Stoke Mandeville in Buckinghamshire and the John Radcliffe in Oxford to guarantee a market.

The hospitals, seeking to attract and keep staff, particularly those on difficult shifts, by providing an on-site nursery, undertake that at least half the places will be filled. If they are not, and cannot be filled by the general public, the hospitals have agreed to pick up the bill.

Typically, the nurseries are one-storey brick buildings in Tesco style, with kitchen, garden and separate rooms for three age groups. They boast the kind of names - Lime Grove, Cedars, Woodlands - that developers give to executive housing estates.

They cost between pounds 220,000 and pounds 350,000 to build and equip, depending on land values, and only about half of this can be borrowed from banks. A nursery typically takes 45 children, charging pounds 24 a day. So revenue is about pounds 200,000 a year, allowing for holidays, and empty places and half-day places. Total costs are about pounds 130,000 (of which about pounds 105,000 is salaries), leaving perhaps pounds 70,000 before central overheads and interest.

'We lost money in the first year, broke even in the second, didn't go much further in the third and will make money in the fourth,' Sir Peter says. 'We expect about a 10 per cent pre-tax return on equity in the fifth year.' That falls well short of the 25 per cent investors typically look for in a new company.

The board has just discussed Mike Thompson's paper on diversification, but it would like to find something that generated more cash for less capital. It is only now, with nine nurseries operating, that the business is producing sufficient cash to finance new sites without any further injections of equity.

Should they not just grow the existing business more quickly? 'We could say, let's do an Enterprise Investment Scheme, get in pounds 1m of new equity, borrow another pounds 1m, open another eight or nine nurseries in the next year,' Sir Peter says.

But his son does not seem to want to risk forcing the pace. 'And he's the one running the business,' says his father. Mike fidgets. 'We try to be obsessive about quality,' he says. They have to be. One nasty accident and no amount of public liability insurance would cover the damage to their reputation.

This is clearly not a get- rich-quick business. The links with hospitals make a lot of sense. 'The staff turnover seems fairly low and the children have a well-structured day,' says Kate Smyth, service manager of the Bloomfield child mental health centre at Guy's, whose two-year-old daughter attends anursery.

But from a business point of view it is hard to believe that purpose-built space is as cost-effective as converting existing space. The pay-off will come if Child Base establishes itself as a leading name in the field, and companies, hospitals and councils countrywide pick it to run nurseries for them. For another of Sir Peter's investments, the quoted Community Hospitals, it took 10 years.

(Photograph omitted)