Private equity is reshaping childcare: what does it mean for Australia?

New research into the United States childcare market has found that services backed by private equity charge substantially higher fees than providers overall and are less likely to accept subsidised children or offer financial assistance.

The findings add to an international debate about the growing influence of private investment and corporate consolidation in early childhood education and care (ECEC), a debate with clear relevance for Australia.

Private equity already has a meaningful presence in the Australian childcare market, alongside publicly listed companies, multinational operators, large not-for-profit organisations and independently owned services.

As governments increase their investment in early learning, questions about ownership, transparency, affordability, workforce conditions and the use of public funding are becoming increasingly important.

The US research, reported by the Detroit Free Press, comes from a working paper titled Big Daycare: The Growth of Private Equity in the U.S. Child Care Market.

Researchers Jessica H. Brown from the University of South Carolina and Chris M. Herbst from Arizona State University examined childcare business records, investment data, provider surveys, licensing information and accreditation records covering the period from 1997 to 2024.

They found that the proportion of centre-based childcare workers employed by private equity-backed providers grew from less than one per cent in 1997 to approximately nine per cent in 2010.

Growth has since stabilised, with private equity-backed providers employing just under 10 per cent of the US centre-based childcare workforce in 2024.

Childcare can be attractive to investors because it is an essential service supported by continuing demand and substantial government funding. The sector also remains highly fragmented, creating opportunities for investors to acquire individual services or smaller groups and consolidate them into larger networks.

The research found private equity-backed services were generally larger, employed more people and generated more revenue than independent providers.

Private equity-backed services charged approximately 30 per cent more than the broad group of non-private-equity providers, with higher prices recorded across all age groups.

However, that difference largely disappeared when the researchers compared private equity-backed providers specifically with other large childcare chains.

This is an important distinction. The findings do not establish that private equity ownership alone causes higher fees. Instead, they suggest that larger corporate operating models, regardless of their precise ownership structure, may be associated with higher prices than independently operated services.

Private equity-backed providers were also approximately six percentage points less likely to accept childcare subsidies than providers overall.

Only three per cent offered scholarships or sliding-scale fees, compared with 21 per cent of all providers. Although the difference narrowed when private equity-backed services were compared with other chains, families remained less likely to have access to financial assistance.

The researchers found that private equity-backed services were more likely to operate in economically advantaged and capacity-constrained communities.

These areas tended to have:

• higher rents;
• higher levels of educational attainment;
• fewer single-parent households;
• insufficient childcare supply; and
• families with a greater capacity to pay higher fees.

Locating services in communities with unmet demand can allow providers to fill places quickly, maintain strong occupancy and face less pressure to compete on price.

The researchers said this pattern may indicate that private equity-backed operators strategically enter markets in which families have limited alternatives and are less sensitive to higher prices.

They were also more likely to operate in US states with smaller public preschool programs and more lenient workforce regulations, including higher permitted child-to-educator ratios and lower educator qualification requirements.

The study did not find a simple relationship between private equity ownership and service quality.

Private equity-backed services recorded higher educator and child turnover than non-private-equity providers, which may indicate concerns about workforce or family satisfaction.

They also tended to have more children per educator than providers overall in some age groups, although these differences largely disappeared when compared with other corporate chains.

At the same time, private equity-backed services were more likely to hold formal quality accreditation and achieve the highest ratings within state quality systems.

Approximately 26 per cent were accredited by the National Association for the Education of Young Children, compared with 18 per cent of non-private-equity chains and five per cent of independent providers.

Much of this difference, however, was driven by the high accreditation rate of KinderCare. When KinderCare services were removed, the remaining private equity-backed services had accreditation rates similar to or lower than other chains.

The findings demonstrate why quality cannot be assessed through one measure alone. Formal ratings and accreditation are important, but so are educator stability, qualifications, relationships, leadership, working conditions and children’s everyday experiences.

The Australian ECEC market has its own regulatory, funding and operating environment, meaning the US findings cannot be directly transferred to Australian services.

Nevertheless, Australia has experienced its own sustained growth in corporate and institutional ownership.

Major Australian provider Affinity Education Group is owned by funds managed by Quadrant Private Equity, while Guardian Childcare and Education has been majority-owned by global private markets firm Partners Group.

Other large providers operate under different structures. G8 Education is publicly listed on the Australian Securities Exchange, while Goodstart Early Learning, the country’s largest provider, is a not-for-profit social enterprise.

Australia also has multinational, family-owned, franchised, community-managed and independently operated providers.

This mixture is important because the terms “corporate”, “for-profit” and “private equity-owned” are not interchangeable. Each ownership model carries different investment horizons, governance arrangements and accountability mechanisms.

Private equity firms typically acquire businesses on behalf of investment funds, implement growth and operational strategies and seek to sell or otherwise realise their investment after a defined period.

A publicly listed provider is accountable to shareholders and market disclosure requirements, while a not-for-profit provider is required to reinvest surpluses in pursuit of its stated purpose.

These structural differences may influence how organisations approach growth, property, staffing, fees, acquisitions and investment in service quality, but ownership structure alone does not determine the quality of an individual service.

What Australia’s childcare inquiry found

The Australian Competition and Consumer Commission’s Childcare Inquiry examined prices, costs, profits and competition across the Australian market.

Its final report concluded that the existing market and subsidy arrangements were not delivering affordable or accessible care for all families. It also found that childcare markets operate differently depending on location, levels of demand, workforce availability and the number and type of providers operating within them.

Australia’s Child Care Subsidy provides a substantial and comparatively predictable stream of public funding to approved providers through payments made on behalf of families.

This makes transparency particularly important. As public investment increases, governments and communities have a legitimate interest in understanding:

• who ultimately owns and controls services;
• how public funding is being used;
• how profits and management fees move through corporate structures;
• whether investment is reaching educators and children;
• how acquisitions affect local competition;
• whether fees reflect the cost of delivering quality; and
• how financial decisions affect service stability.

The issue is not whether an organisation is permitted to generate a return. Australia relies on a mixed market to deliver much of its ECEC capacity.

The more important question is whether funding, governance and accountability settings ensure that children’s safety, quality of education, workforce stability and equitable access remain central to decision-making.

Larger providers can offer advantages, including centralised compliance systems, professional development, purchasing capacity, specialist support teams and greater access to capital.

Investment can also help fund new services, improve facilities and increase the number of available places.

However, rapid growth and consolidation can introduce risks if organisational systems, leadership capability and safeguarding oversight do not keep pace with expansion.

Where services are acquired and integrated into larger groups, attention must be given to:

• continuity of leadership and educators;
• organisational culture;
• local decision-making;
• regulatory and safeguarding oversight;
• the sustainability of debt and property arrangements;
• pressure associated with occupancy and financial targets; and
• maintaining meaningful relationships with children, families and communities.

The collapse of ABC Learning during the global financial crisis remains a significant Australian example of the systemic consequences that can arise when rapid, debt-funded expansion occurs within an essential social service.

Ownership structure is one factor families may consider, but it should not be used as a substitute for examining the quality of an individual service.

Families can look beyond branding and facilities by asking:

• How long has the service director been in the role?
• What is the service’s educator turnover?
• How many educators are employed above minimum ratio requirements?
• How does the service support educator qualifications and professional development?
• What is its current National Quality Standard rating?
• How are complaints and safeguarding concerns managed?
• How are fee increases determined and communicated?
• Who owns the service and where are major decisions made?

These questions provide a clearer picture of how a service operates and whether its stated values are reflected in everyday practice.

A growing policy issue for Australia

The US working paper is descriptive and does not prove that private equity ownership directly causes higher fees or lower quality.

Its strongest finding is more nuanced: private equity-backed services differ substantially from independent providers but frequently resemble other large corporate chains.

For Australia, this suggests the policy discussion should extend beyond private equity alone to consider the broader effects of consolidation, scale and corporatisation across ECEC.

As governments move toward greater investment and expanded access, Australia will need stronger visibility of ownership structures, related-party arrangements, financial performance, workforce investment and service-level quality.

Private capital can support the expansion of ECEC, but that investment must operate within a system in which public funding delivers a clear public benefit.

The central question is not simply who owns a service. It is whether the organisation’s governance, financial and operational decisions consistently place children’s safety, wellbeing, learning and development at the centre.

The US working paper, Big Daycare: The Growth of Private Equity in the U.S. Child Care Market, is available online.