Throughout 2025, the early education and childcare sector continued to demonstrate why it remains one of the most complex, growth-oriented, and exciting sectors in the middle-market M&A landscape. Despite persistent challenges with wage inflation and changing policy dynamics, transaction activity remained steady. Demographic growth across many U.S. markets, combined with the industry’s highly fragmented structure, continued to attract interest from both strategic operators and institutional investors.

 

2025 Market Recap: A Resilient but Selective Environment

 

Broad macroeconomic uncertainty and industry-specific challenges drove a notable flight to quality across the childcare M&A market. While deal volume was steady, we are by no means in a buying frenzy and buyer behavior reflected discipline rather than urgency. Strategic buyers were committed to strict underwriting and focused on acquisitions that aligned with their long-term operating model.

 

Several key themes we took note of this year:

 

• High-quality centers traded efficiently: Centers meeting the core criteria of large consolidators, including stable and growing enrollment, experienced leadership, and predominantly private-pay revenue, continued to attract multiple bidders and transact on strong timelines at top-of-market pricing.
• Spotlight on small portfolios: Regional operators with 3+ locations proved especially attractive, due to the operational efficiency, risk mitigation, and ability to capture significant market share that comes with a multi-unit acquisition
• Single-unit operators remained active sellers and faced significant market competition: There is no shortage of independent owners nearing retirement or ready to exit the business due to operational challenges. To beat out the market competition, sellers and brokers needed to focus on preparing updated and organized financials, pricing based on defendable and realistic underwriting, and painting a picture of future sustainability and upside. Arguably most importantly – given many mom-and-pop schools may not be a fit for corporate consolidation, it is vital to have an understanding of who the local and regional buyers are.
• Multiples on subsidy-heavy deals compressed: Buyers across the spectrum showed a clear preference for private-pay models over subsidy-dependent revenue. This reflected heightened awareness of the operational and regulatory risks tied to subsidy programs, including reimbursement variability and funding uncertainty. While subsidy-driven schools are a vital part of many communities around the country and can be a great business model for a mom-and-pop operator, it is important for sellers to manage their expectations and understand there is a narrower buyer pool and, in turn, lower market multiples.

 

What to Expect in 2026: How These Trends Are Evolving

 

Continued institutional and private equity investment in the childcare sector, combined with stabilization in the interest rate environment and broader capital markets landscape, positions the industry for another strong year in M&A activity.

 

• Ongoing Consolidation: As independent owners approach retirement and become more familiar with strategic exit options, the supply of independent owner-operator sellers is expected to increase.
• Stable Real Estate Valuations: REITs, private real estate funds, and developers are increasingly interested in partnering with strategic operators to purchase high-performing childcare assets through joint ventures or acquisition sale-leasebacks. Net-lease childcare has also seen increased buyer activity, supported by expansion from top operators (KinderCare’s initial public offering, The Learning Experience’s 600+ unit development pipeline, etc.) and broader industry growth projections. Together, these dynamics continue to support competitive valuations for real estate sold alongside operations.
• Greater Emphasis on Operating Fundamentals: Enrollment pressure driven by affordability constraints, wage inflation, and changes to subsidy programs has shifted buyer attention to fundamentals and long-term sustainability. Buyers will have an increasing focus on the demographics and competitive tuition cost analysis of any given potential acquisition, as opposed to a sole focus on the school’s historical financials. While this refocus will create a competitive environment for sellers and constrain business valuations, it will ultimately ensure buyers are able to successfully operate the schools they acquire and provide the highest quality childcare for their communities.

 

What This Means for Sellers

 

Practical advice for owners considering a sale in the next few years:

• Prepare early: Clean, well-organized financial statements, ideally with monthly detail for the most recent year, build buyer confidence, streamline diligence, and support stronger outcomes.
• Prioritize sustainability: Buyers are evaluating long-term operational sustainability, not just historical results. Businesses operating at margins that cannot be realistically sustained post-transaction are unlikely to command top-of-market pricing.
• Maintain performance: Maintaining stable or growing performance heading into a sale process is essential. Declining revenue or enrollment raises concerns around transferability and often results in multiple compression. Consistency remains one of the most effective ways to protect value and position a business favorably with buyers.