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Child care costs rising with more private equity firm investments

Experts are cautioning that more private equity firms investing into child care could make the affordability crisis worse.
Posted at 3:48 PM, Mar 23, 2023

For a while, companies did not see the child care industry as a way to get rich. But these days, private equity investors are seeing dollar signs. 

"More and more group centers are no longer independently owned. More and more are being either bought out or are being opened in conjunction with larger companies and corporations," said Corrine Hendrickson, owner of Corrine's Little Explorers.

Private equity firms raise money from individual investors and institutions and then use it to buy and sell businesses for a profit. And they moved quickly once they saw the rising demand for child care — a $60 billion industry in 2022, according to Grand View Research

"Increasingly, in the past — especially after the pandemic — we've seen this big surge in parents who are interested in providing other activities for their kids that they weren't able to previously do. And so, as a result of that, we've seen much more money from the private equity industry go into childcare," said Andrew Park, senior policy analyst at Americans for Financial Reform.

Corrine Hendrickson runs a family child care business out of her home in New Glarus, Wisconsin. She charges anywhere from $190 to $210 per week, which is typically less than what center-based child care businesses charge, especially those closer to Madison or Milwaukee. Because many of those commercial care spaces are now backed by private equity dollars, Hendrickson says "they can make a couple of dollars more an hour than we can."

Children listen to an instructor reading a book

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And that puts the future of businesses like Hendrickson's — serving middle-income families — at risk. Because with American Rescue Plan funding ending, it will be more expensive to hire staff. 

"Since I started, across the country there are half of us than there were in 2010. In Wisconsin, there are 69% fewer of us than there were in 2010. So, that tells you what's happened to us," Hendrickson said.

She says government funding would help supplement pay for employees, allowing her to keep up with the competition and provide relief to parents worried about prices

"Parents, for years, they ask me when my next open space is. They plan their pregnancies around me," Hendrickson said.

The median household spends at least 14% of its income on child care per child. That's double what the Department of Health and Human Services considers affordable. 

One expert says the increase in private equity-backed childcare could make the affordability crisis worse. 

Parent and child walking into daycare.

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"It could get worse because these companies are going to keep raising fees. Their entire business model is predicated on continuing to make profit," said Elliot Haspel, author of "Crawling Behind: America's Child Care Crisis and How to Fix It."

Haspel also warns private equity-backed childcare chains are more at risk during economic downturns — like a recession —  than independent providers are. 

"The more we rely on the complex financialization of child care, the more likely it is that we're going to see some collapse happen. That's going to leave a whole lot of families in a really, really bad situation," Haspel said.

Some of the biggest firms invested in the industry — including Roark Capital, Sycamore Partners, and Glencoe Capital — did not respond to requests for comment from Scripps News about their investments in child care. 

"These are privately-owned businesses and people will want to get into these businesses," Park said. "How do you do so in a way that encourages those who are genuinely interested in investing in this industry, while making sure that you don't have, let's call it, more of a challenging or more even, you know, a predatory-type of model coming into place here?"