Concerns are mounting among some lawmakers and advocacy groups that private equity firms are negatively impacting the childcare sector by increasing costs and decreasing quality. However, a new study analyzing the economics of childcare suggests the influence of private equity may not be as widespread or detrimental as often portrayed.
Senator Jeff Merkley (D-OR) has been investigating the impact of private equity on childcare, sending document requests to KinderCare Learning Companies and Learning Care Group, two of the largest private-equity-owned childcare providers. Merkley stated that private equity increasingly prioritizes "investor profits over the well-being of the families and communities that depend on these services."
Advocacy groups have echoed these concerns, warning that private equity, known for quick business turnarounds, should be kept away from childcare. Elliot Haspel, a childcare expert, noted in 2022 that private-equity owned chains "ultimately answer to investors or shareholders first, parents second," drawing parallels to potential declines in quality seen in nursing homes acquired by private equity. A 2024 report from the Open Markets Institute, the National Women’s Law Center, and Community Change contended that such centers might exploit public funding and resist reforms.
In response to these worries, lawmakers in at least five states—Colorado, Connecticut, Massachusetts, New York, and Pennsylvania—have introduced or passed legislation addressing ownership structures in childcare policy, capping grant amounts for large for-profit chains, or attaching specific conditions to public funds for these providers. A coalition of national groups also released model state legislation.
Study Findings Complicate Narrative
A forthcoming paper by researchers Jessica Brown of the University of South Carolina and Chris Herbst of Arizona State University, described as the first systematic look at private equity's presence in U.S. childcare, challenges some of these assumptions. Their findings indicate that private equity's share of the childcare workforce has remained stable at around 10% since 2010 and is geographically concentrated, with three-quarters of these centers located in specific areas like Phoenix, Las Vegas, Denver, Atlanta, and northern Virginia.
Contrary to concerns about declining quality, the study found that private-equity owned centers have been operating for an average of 18 years, longer than other chains. Between 2021 and 2024, these programs increased their staffing levels while non-private-equity providers reduced theirs.
"Given what we see, private equity is not the reason that childcare is unaffordable," Brown stated. Herbst added that the study's findings were so unremarkable they had considered titling their paper "Much Ado About Nothing."
While the study did not establish causal links for the period when private equity took over specific centers, it did reveal some distinctions. Private-equity chains generally charge prices comparable to other large childcare companies. Although they are slightly less likely to accept public subsidies than other large chains (70% versus 78%), they are more likely to hold their state's top quality rating. Both private-equity and non-private-equity large chains tend to be located in wealthier areas. However, private-equity providers appear more drawn to states with less stringent staffing regulations and to counties with the most competitive childcare markets.
Herbst noted that the geographic concentration of these centers could make high-quality care inaccessible for many families due to location, rather than an inherent lack of quality.
Research Methodology and Private Equity's Interest
The researchers noted a significant lack of prior research on private equity and childcare in the U.S., leading to reliance on extrapolations from other sectors like nursing homes. Their study required significant resources, combining data from seven sources, including proprietary databases, state licensing records, accreditation files, and a self-administered survey.
Private equity's interest in childcare, often perceived as a low-margin business, appears to be focused on specific, high-demand communities rather than the sector at large. The typical private equity model involves buying, improving, and selling businesses within three to seven years. However, some firms are adopting longer-term investment strategies, which aligns with the ownership of KinderCare since 2015 and Learning Care Group since 2014.
Brian Gutman, senior vice president of public policy at Learning Care Group, described childcare as a "long-term play" requiring substantial reinvestment, citing over $1 billion in capital expenditures by his company. He stated that their investors seek a sustainable company. However, documents obtained by Senator Merkley's office indicate that Learning Care Group borrowed at least $636 million in 2018 to pay owners, with the company now carrying substantial debt.
Gutman asserted that private capital enables scale, such as the widespread installation of livestreaming cameras in classrooms, an investment difficult for smaller operators to afford. He also suggested that the focus on private equity might be a "scapegoat or red herring," arguing that regulations should apply to the sector broadly rather than targeting specific ownership structures.
He pointed out that other large operators, including non-private-equity backed chains, can also exhibit problematic behavior, citing a venture-capital-backed Montessori chain that abruptly closed its locations. Gutman argued that singling out private equity could inadvertently exclude providers from public programs, impacting families who rely on them.
Elias Haspel, while open to broader regulations on large for-profit chains, emphasized the potential risks posed by private equity, particularly with increased public funding. He referenced an ongoing investigation by the UK's competition regulator into whether private equity ownership is serving families or driving up childcare costs.
Brown and Herbst's primary recommendation is for increased public information, suggesting states collect more data on pricing, wages, and staff turnover to facilitate targeted policy solutions. "I think in some ways people are trying to look for an easy solution, but the thing is there is no easy solution in childcare," Brown said.