Private Equity Finds Opportunity in America’s Child Care Crisis

Industry Overview - The US childcare sector includes roughly 11 million children under 15 in paid childcare [2] - Childcare in the US is uniquely expensive, comprising a higher proportion of average income than elsewhere [4] - Private equity firms are increasingly involved in the childcare sector, drawn by the strong demand and real estate opportunities [6] Private Equity Involvement - For-profit chains account for 10-12% of the childcare sector and are growing due to access to debt financing and capital markets [6] - Private equity firms utilize sale leasebacks, selling the real estate occupied by childcare centers and leasing it back, generating profits [7] - National chains and independent centers targeted by private equity account for about 39% of children in care, expected to grow to 45% in 5 years [12] Risks and Challenges - Overleveraging can lead to childcare chain collapses, as seen with Guidepost Montessori closing 40-50 sites and filing for bankruptcy [13] - Similar collapses have occurred in other countries like the Netherlands and Australia [14][15] - Rapid growth and large chains can lead to a loss of control over quality and other concerns [16] Alternative Solutions and Perspectives - Private equity may increase capacity but doesn't fundamentally solve the demand for affordable, high-quality childcare, especially for lower-income families [26] - Short-term gains and economic solutions may not be the best drivers when dealing with children's needs [27] - Public funding, like Vermont's $125 million childcare bill, can provide access to childcare assistance for over 7,000 families and boost the economy by $375 million [20][23]