A new study sheds light on an ongoing discussion over corporate expansion in childcare across the country, including in Michigan – particularly of large childcare chains owned by private equity companies.
Private equity’s gotten a bad rap in other care industries
like nursing and hospice care, where research has documented how private equity involvement resulted in lower quality services, higher rates of mortality and higher costs for patients. But in childcare, studies have been sparse, even as private equity has expanded its footprint in the industry.Nearly all of the major childcare chains are or previously were owned by private equity, including the two largest chains in the nation, KinderCare and Novi-based Learning Care, which include brands
like Childtime, Tutor Time, Apple Tree & Gilden Woods and Everbrook Academy. In Michigan, 12% of child care employment is at private equity backed centers, said Jessica Brown, an economist at University of South Carolina who co-authored the new study, billed to be the first on this topic in the U.S. childcare market. This includes a total of around 160 childcare centers serving thousands of kids across Michigan.
Private equity companies oversee funds with investments from both institutions and wealthy individuals. They often use debt to buy up companies and restructure them to maximize profits. The question at the center of the conversation is whether private equity's responsibility to investors leads companies to prioritize their interests over those of kids, families and educators. Are they helping or hurting in an already struggling industry?
Some early childhood experts and private equity watchdog groups say the very nature of private equity investment is fundamentally incompatible with the mission of childcare. State and federal lawmakers have proposed regulations and launched investigations into private equity backed childcare centers, many of which receive significant amounts of taxpayer dollars from state and federal childcare assistance programs to help low-income families afford childcare.
But private equity companies say parents on the whole don’t care about who owns their childcare, they care about getting a high quality early education for their kid, which the companies say they’re well-positioned to provide because they have the benefit of scale and money. And some who work with these companies say they've seen the benefits, even as they understand the concern given private equity's impact in other industries.
"It almost requires a certain mass to afford the quality components that I think children deserve. And ... do you see occasionally a company gets themselves in trouble for some reason yes, that's every industry. But it has not been my personal experience that PE-backed buyers come in and sacrifice people and children's quality for money," said Kathy Ligon, who owns an early education advising company and helps match childcare owners looking to sell their centers with companies looking to buy, some of which are private equity owned.
Up until the release of the new study, information about what happens when private equity takes over childcare in the U.S. has been largely negative and anecdotal, calling attention to issues at individual centers owned by private equity, including insufficient staffing, failure to follow licensing regulations and parents left scrambling without notice after companies make sudden changes.
Some of the study’s findings align with critics' concerns, like private equity’s higher prices for parents. But others don't, like claims that these kinds of centers provide lower quality care. And many other issues that have been raised weren't included in the study, like how teacher wages compare and private equity's impact on the broader childcare ecosystem.
As the debate over private equity in childcare continues, parents with kids at these centers shouldn’t worry, said Diane Schilder, who has studied childcare and early education over the last three decades.
“Being alarmed is never helpful,” Schilder said. Instead, she said parents can take steps to learn more about the markers of high-quality childcare and use them to evaluate their kid’s center.
What the new study says
Brown and fellow childcare economics researcher Chris Herbst at Arizona State University set out to study the impacts of private equity in childcare by using national business registry data to compare characteristics across U.S.-based childcare centers in the recently published "Big Daycare: The Growth of Private Equity in the U.S. Child Care Market."
Critics have raised concerns that private equity owned companies will lessen the quality of childcare, but Brown and Herbst’s research found quality indicators, including early childhood accreditation rates and state quality ratings, are higher at private equity backed childcare centers compared with non-private equity owned centers.
This is a point that private equity backed childcare companies often highlight. For example, nearly 90% of KinderCare centers are accredited through the National Association for the Education of Young Children, an early education membership organization, wrote KinderCare spokesperson Colleen Moran in a statement to the Free Press.
While KinderCare went public in fall 2024, the company is still considered private equity backed since 70% of its shares are held by Switzerland-based private equity firm Partners Group.
The money and scale also allow these companies to invest in things that increase program quality, like educator compensation and training, curriculum and facilities improvements, wrote Radha Mohan, executive director for the Early Care and Education Consortium, a lobbying group representing large childcare providers including KinderCare and Learning Care.
But measuring quality is hard to do, Brown acknowledged, since the external markers of quality their study looked at doesn’t always paint a full picture of a program’s caliber. When looking at a smaller sample size of data in just a few states, the study found other key quality indicators, like teacher and child turnover, were higher at private equity-backed centers, "potentially indicating lower satisfaction with the care service or working environment," the study said. High teacher turnover is associated with poorer outcomes for kids.
Brown and Herbst's study also found that private equity backed childcare costs parents more. Tuition prices are essentially the same across both private equity owned and non private equity owned large chains, but compared to all childcare centers, private equity backed centers are more expensive, she said.
Companies have recognized that in order to make a profit in a notoriously low margin industry, they need to push costs onto parents. In KinderCare’s 2021 IPO filing, for example, the company stated “our continued profitability depends on our ability to offset our increased costs, such as labor and related costs, through our families.”
Researchers found that private equity backed childcare is more likely to locate in high-income areas where parents who can afford high tuition provide reliable income. The study also found that private equity backed childcare is more likely to be located in states with fewer regulations, some of which are associated with higher quality care and education for kids.
“We find that private equity backed providers are more likely to be in states that allow more children per teacher or that have lower educational requirements for teachers which is going to lower the labor costs,” Brown said.
The study also found that lower labor costs allow private equity backed centers to earn about 35% more in sales per employee compared to all centers, suggesting they "may be significantly more profitable than other providers."
Brown said that regardless of their specific business model, large childcare chains have similar outcomes across the board, regardless of private equity involvement. The more compelling comparison might be looking at outcomes for kids and families at for-profit versus nonprofit childcare centers, like the YMCA, which Brown hopes to pursue in future studies.
Brown said her study is just the beginning of learning more about the impact of private equity in childcare, and did not arrive at a conclusion about whether private equity is generally good or bad for the industry, for kids and for families.
“You often hear about childcare providers closing because they can’t afford to stay in business,” she said. “And so it’s actually not clear, you know, whether it’s better or worse to have a company who’s actually able to make profits and survive.”
How can I learn more about my kid's private equity owned childcare center?
The majority of private equity backed centers in Michigan are run by KinderCare and Learning Care (formerly Learning Care Group).
According to the Great Start to Quality website(greatstarttoquality.org), a statewide database where parents can search for childcare, there are 154 private equity owned centers across Michigan (these numbers might be different from those provided from individual companies):
- KinderCare, owned by Partners Group, has 51 locations
- Learning Care Group (Childtime, Tutor Time, Apple Tree & Gilden Woods and Everbrook Academy), owned by American Securities, has 69 locations
- Goddard Systems (The Goddard School), owned by Sycamore Partners, has 14 locations
- The Learning Experience, owned by Harvest Partners, has 14 locations (though the Learning Experience website lists four additional locations as “coming soon”)
- Primrose Schools, owned by Roark Capital Group, has five locations
- Lightbridge Academy, owned by Balance Point Capital, Cybeck Capital Partners, Elmsley Capital, Peterson Partners, Westerly Group, has one location
Separately, Bright Horizons Family Solutions Inc., a publicly traded company with a history of private equity ownership, has six locations in Michigan.
To find more information, including documented licensing violations that occurred at these sites, parents can visit the state of Michigan’s statewide facility search at cclb.michigan.gov to find their childcare center’s records. They can also use the state’s Great Start to Quality website to learn more about the different markers of quality early childhood education and search their kid’s childcare site by its state-issued quality rating.
And as policymakers and researchers catch up, parents are in a position to gain insight on some of the questions researchers eventually hope to answer about quality in private equity owned childcare centers, said Schilder.
Parents often can request to drop in to observe their kid’s center. They can look for things like whether teachers are consistent and have stable schedules or if teacher schedules seem ad-hoc. Or whether educator relationships with kids are responsive in the classroom setting, she said.
Why private equity is involved in a notoriously low-profit industry
Childcare providers have a common saying: I didn't get into this industry to make money. So why has private equity gotten involved?
“Private equity likes to invest in sectors that will have consistent funding and is not too dependent on consumer interests and tastes,” said Azani Creeks, senior researcher at the Private Equity Stakeholder Group, a nonprofit watchdog group that recently authored a report on this subject focused on Michigan. Investors want a piece of that pie. That makes childcare, with consistently high demand from parents and an influx of public funding in many states like Michigan, a perfect candidate.
Taxpayer dollars can make up a large portion of these companies’ revenue. As part of an investigation launched by U.S. Sen. Jeff Merkley, a Democrat from Oregon, a letter from the senator cites an analysis of Learning Care's financial performance that suggests around a third of the company's revenue comes from state and federal childcare subsidy dollars, ranging between $150 million and $170 million in fiscal year 2022. Learning Care has a policy of accepting the childcare subsidy at all of their centers because the company wants to provide access to quality care for all children, said Brian Gutman, senior vice president of public policy and government relations at Learning Care.
Merkley's letter to KinderCare highlights $457 million in government subsidies provided to the company during the first half of 2024. The letter raises the question of whether companies like these can be trusted with public money given their complex structures and their commitment to investors. KinderCare made at least two large dividend payments to its owners, including Partners Group, both of which were funded by taking on more debt: a $300 million dividend paid out in 2017 and a $320 million dividend paid out in 2024, shortly before the company went public, according to the letter.
Government, some industry watchers say, should regulate how much public funding private equity backed centers get and how they can use that funding, so tax dollars that may contribute to profits aren't distributed to investors and instead are directed towards things like raising notoriously low early educator wages or expanding into places where parents need more affordable childcare options.
“It’s staggering that we don’t know the difference in profit margins of different types of providers because those profits come from public money. So we can’t tell how much of taxpayer funds are going towards actual provision of services versus funds going back to managers and investors of these companies,” said Audrey Stienon, policy expert at the Open Markets Institute, where she co-authored a 2024 report critical of private equity in childcare.
“What we need when talking about private equity is transparency. How much funding is public and what is the quality of service that we’re getting back as taxpayers for that money?” Stienon continued.
Because the majority of these companies are not public, experts say it's hard to give an accurate estimate of these businesses' profit margins and therefore hard to understand if they have significantly higher profit margins than the razor thin 1% marginsmany private mom and pop childcare sites operate on. At KinderCare, which releases its financials, the profit margin based on adjusted net income for the company's 2025 fiscal year was about 3%. For 2024, the profit margin was about 1%.
Creeks pointed to Massachusetts as a prime example of where lawmakers have taken action. In 2024, the state passed a bill to limit the amount of public funding large, for-profit childcare companies with more than 10 centers in the state can receive, in addition to requiring additional transparency and reporting requirements.
The concerns critics have about private equity in childcare extend to large, corporate chains as they buy up smaller owners looking to leave the business, either because it's too tough or they're retiring. Private equity and other large companies shouldn't be the only ones able to survive in childcare, Stienon said. Leveling the playing field requires public funding that allows a diversity of providers to continue to survive and meet families' diverse needs, she said.
"If all these things are in place and next to KinderCare, you have three other independently-owned providers, great," Stienon said. "The problem is when it's KinderCare and no one else. And I'm afraid that's where we're heading towards because no one else has the support to survive."
Beki San Martin is a fellow at the Detroit Free Press who covers childcare, early childhood education and other issues that affect the lives of children ages 5 and under and their families in metro Detroit and across Michigan. Contact her at rsanmartin@freepress.com.
This fellowship was founded with support from the Bainum Family Foundation. The Free Press retains editorial control of this work.
This article originally appeared on Detroit Free Press: As private equity ownership grows in childcare, study looks at impact
