[Archived] Private Equity Investments in Large For-Profit Child Care Organizations

[Archived] Private Equity Investments in Large For-Profit Child Care Organizations

CRS INSIGHT Prepared for Members and Committees of Congress

INSIGHTi

Private Equity Investments in Large For-Profit Child Care Organizations

Updated October 31, 2024

Although parts of the child care industry can be perceived as having “long hours and low profits,” different providers operating within the same industry may vary greatly in size and capability to access capital. Evidence suggests that some of the largest for-profit child care organizations operating in the United States appear to control significant licensed capacity and have substantial access to private equity (PE) funding, including PE funding from foreign investors. Policymakers may therefore question the extent to which the large PE-backed providers should or should not be subject to regulations and government funding support that are different from the rest of the industry.

This Insight presents high-level information on PE among a selection of large for-profit child care organizations. A more detailed discussion can be found in CRS Report R48252, Private Equity Investments in Large For-Profit Child Care Organizations: In Brief . For general background on PE, see CRS Report R47053, Private Equity and Capital Markets Policy.

Background

PE is a type of pooled investment vehicle that normally invests in private companies that are not publicly traded. PE firms’ business models focus on the maximization of financial profits. As such, PE transactions historically center around industry sectors with relatively high profitability (Figure 1). While PEs’ business model of profit maximization (sometimes involving cutting jobs and increasing debt to pay investors) could appear to be in tension with certain public-service-oriented missions of the child care industry, the industry may benefit from PE firms’ funding and their potential role in enhancing operations and competition that may expand child care availability.

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Figure 1. Private Equity Deal Value by Industry Sector

Source: CRS using data from PitchBook, U.S. PE Breakdown, July 9, 2024. Notes: Data for U.S. private equity. *As of 6/30/2024. B2B = business-to-business. B2C = business-to-consumer, which could include the child care industry.

Analysis

CRS identified the organizations in Table 1 using Exchange magazine’s annual status reports on large for- profit child care organizations from 2023 and 2024. The table includes all organizations from these lists with reported licensed capacity of at least 15,000 slots. CRS reviewed transaction and corporate structure information in the S&P Capital IQ Pro database, among other sources, to identify PE investors and their level of ownership control. Publicly available data on PE investments and private companies are limited, and these findings should be treated as illustrative rather than comprehensive.

Key findings:

• The table includes 16 child care organizations with reported licensed capacity of 15,000 or more. Among these organizations, 13 have known current or past PE investments.

• These 13 organizations with PE backing (which do not represent all providers with PE backing) were licensed to serve, in aggregate, roughly 1 million children. For context, roughly 11 million children under age 15 were reported to be in paid child care in 2023, per CRS estimates.

• Some large child care organizations received funding from foreign PEs based in Switzerland, the United Kingdom, China, and the United Arab Emirates, among others. Two large providers received funding from large Canadian pension funds.

• PE investment in large child care organizations is not a new phenomenon—PEs have reportedly been operating in the space since the 1980s and have become more active since the early 2000s.

• Going public is one of the preferred exit strategies for PEs. KinderCare and Bright Horizons Family Solutions are two examples of exits for PEs where the PE investors received investment returns and enhanced liquidity for their ownership shares.

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Table 1. Examples of Private Equity (PE) Investments in Large For-Profit Child Care

Organizations

Name Centers Capacity

Known PE

Investments

(Y/N)

Current

PE

Investor

Level of

Current

PE

Ownership

Selected

Examples of Previous PE and Pension

Fund Investors

PE

Country

KinderCare Learning Companies Inc. (NYSE: KLC)

1,555 212,000 Y

Partners Group Holding AG

Majority (71%) _ Switzerland

Learning Care Group Inc.

1,100 167,000 Y

American Securities LLC

Controlling

Morgan Stanley Private Equity owned 60% of the Learning Care Group in 2008. American Securities completed its acquisition in 2014. Canada’s Public Sector Pension Investment Board made a “significant equity investment” in 2018.

USA

Bright Horizons Family Solutions Inc. (NYSE: BFAM)

1,063 120,000 Y N/A N/A

Bain Capital had long-term involvement.

USA

Primrose School Franchising Company LLC

508 94,600 Y

Roark Capital Management LLC

Majority (84%)

_

USA

Goddard Systems Inc. 626 93,000 Y

Sycamore Partners Management LP

Majority

_

USA

Kiddie Academy International Inc.

324 53,275 N N/A N/A

_

N/A

Cadence Education Inc.

294 48,923 Y

Apax Partners LLP

Majority (100%)

_ United Kingdom

Kids 'R' Kids International Inc.

182 47,320 N N/A N/A

_

N/A

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Name Centers Capacity

Known PE

Investments

(Y/N)

Current

PE

Investor

Level of

Current

PE

Ownership

Selected

Examples of Previous PE and Pension

Fund Investors

PE

Country

Child Developmen t Schools Inc. (DBA Childcare Network)

272 46,916 Y Glencoe Capital LLC Majority

_

USA

Spring Education Group Inc.

182 (2023)

39,488 (2023) Y

Primavera Capital Group

Controlling

Investcorp sold Nobel Learning Communities to Spring Education in 2018.

China (Primavera), Bahrain (Investcorp)

The Learning Experience

220(202 0)

39,038(20 20) Y Golden Gate Capital Majority _ USA

Busy Bees North America

211 30,860 Y N/A N/A

Busy Bees North America’s parent company entered the U.S. market from the UK in 2019. PE firm Temasek was a minority owner in 2017 and Canadian pension fund Ontario Teachers’ Pension Plan was the majority owner.

Singapore (Temasek)

Endeavor Schools LLC 104 20,820 Y N/A N/A

Leeds Equity Partners invested in Endeavor Schools in 2018. Terms were not disclosed.

USA

The Sunshine House Inc.

140 20,000 N N/A N/A _ N/A

Premier Early Childhood Education Partners

125 20,000 Y

Tyree & D’Angelo Partners

N/A _ USA

Early Learning Academies

84 15,000 Y Safanad Inc. Majority _ United Arab Emirates

Source: CRS using data from S&P Capital IQ Pro, Bloomberg LP, Kathy Ligon, “Thirty-Seventh Annual Status Report on For-Profit Child Care,” Exchange, Spring 2024, pp. 68-72, and Kathy Ligon, “Status Report on For-Profit Child Care,” Exchange, January/February 2023. Other sources in hyperlinks.

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IN12443 · VERSION 5 · UPDATED

Notes: Unless otherwise noted, the percentage of ownership is unknown. N/A = information unknown but may exist. CRS has not independently verified the accuracy of the information taken from these sources.

Author Information

Eva Su Specialist in Financial Economics

Ben Leubsdorf

Senior Research Librarian

Disclaimer

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.