“Have You Ever Considered How You Might Transition Your Business to a New Owner?”

Table of Contents

• Introduction and Background
• Potential Models
  • I. Create a Childcare Acquisition Marketplace and Offer Technical Assistance
  • II. Support Childcare-Focused Real Estate Investment Trusts—with Strong Guardrails
  • III. Allow Public Grant Dollars to Be Used for Childcare Acquisitions in Priority Areas
  • IV. Elevate Opportunities to Transition to Worker- or Parent-Owned Cooperatives
  • V. Create a Childcare Ownership Transition Fund
  • VI. Have the Government Purchase Childcare Programs Directly
• Conclusion

Introduction and Background

The American childcare sector continues to struggle. Widespread staffing shortages and rising operational costs have led to program closures that exacerbate existing supply scarcity. Beyond closures, owners of some independent programs are understandably looking to sell, especially a growing number who are approaching or passing retirement age. Per the US Small Business Administration, there was a net drop (more exits than entries) in the number of childcare establishments with more than 10 employees in six of the nine years between 2012 and 2021, the most recent year reported. The biggest spike in exits came during the pandemic years of 2020 and 2021. Recent research suggests that the sector has experienced acute ongoing challenges in the wake of lingering pandemic impacts and a changed labor market that has made hiring and retaining childcare staff even more difficult than before the pandemic.

At the same time, one subcategory of the sector has been growing, both during and since the pandemic: large for-profit chains, the vast majority of which are owned by an institutional investment entity such as a private equity or venture capital firm, or are publicly traded on the stock market. Unsurprisingly, these chains primarily concentrate on recruiting an affluent clientele, leading to an increase in childcare “haves” and “have-nots.” One reason these chains are able to continue gaining market share is that they are frequently the only game in town when it comes to ownership transition: That is, owners have no one else to sell to.

The lack of robust ownership transition options has many consequences beyond worsening inequality throughout the childcare system. For one, it contributes to instability in our childcare infrastructure. Chains can and do suffer major business setbacks that lead to multiple site closures, as most recently evidenced by the venture capital–backed Guidepost Montessori having to shutter nearly 40 sites in a matter of months as the result of overly aggressive expansion. Absent a public transition mechanism or another chain swooping in, there is no way to keep those sites operational, leading to the abrupt loss of care for hundreds of families, the loss of jobs for scores of employees, and ripple effects that cascade through communities. 

Depending on corporate buyers is also a recipe for increased childcare scarcity in some communities. If the owner of a program in an area with little chain activity, such as a rural town or a low-income urban neighborhood, seeks to sell but can find no buyer, they may sell the facility or land to a buyer from a different industry, who will convert it into a non-childcare usage. This can be especially devastating as such communities frequently have only a few childcare programs, and in some cases the loss of one center is the loss of the only center. Along the same lines, childcare programs in any geography licensed for only a moderate number of children may have particular difficulty finding a buyer. As experienced childcare business broker Donna Dailey has explained, “Large regional and national childcare chains are [generally] only interested in buying large childcare centers. Many of these buyers note a minimum license capacity of 125 or even higher as their target acquisition.”

This lack of transition options seriously impacts owners’ retirement plans. Many childcare programs are small businesses—at least 30 percent of childcare centers are independent for-profits—and so the ability to sell is imperative for the owners’ secure retirement. Regardless of whether an owner would like their site to remain in the hands of a community-based provider or not, they often are left with little choice.

The rising market share of investor-backed childcare chains is not an isolated phenomenon; it is part and parcel of the broader financialization of human services, with investor activity ranging from nursing homes to autism service providers to emergency rooms to prisons. This financialization is most notably marked by the influence of private equity firms, which also exert political power to protect their interests—interests that are not always aligned with what is best for children, parents, staff, communities, and the country writ large. Most of these sectors are heavily dependent on government funding, meaning that this misalignment can result in private investment entities leeching off public money while also harming the end users. 

Therefore, local, state, and the federal government must develop alternate ownership transfer mechanisms in childcare as a bulwark against profit-maximizing financialization and as an affirmative good for building a family-friendly and family-centered care system and policy framework. As the Roosevelt Institute has argued, “Through competition, public options can put upward pressure on private firms (and indirectly regulate profit-seeking private actors) to provide better goods and services.” The remainder of this brief outlines potential models for doing so.

Each of the models addresses, in different ways, the substantial barriers that prevent trusted community-based providers or governments from purchasing childcare programs that are looking to sell. These barriers include a lack of the following resources, which may overlap with one another:

• Access to capital in the form of grants and/or investment dollars¹
• Access to debt capital, as many banks will not lend to small childcare providers and, given the high prime interest rate as of May 2025, loans may have prohibitively high debt service (the interest rate for the most common type of small business loan currently exceeds 10 percent) 
• Ability to utilize existing public monies (e.g., from federal or state grants) for acquisitions or major renovations due to legal restrictions
• Technical knowledge in navigating processes related to real estate transactions, capital raises, loan applications, and other necessary facets of making a purchase
• Knowledge of what programs in their area are up for sale
• Mechanisms by which a given government could make a purchase

Large investor-backed chains are well-positioned to surmount all of these challenges. Chains have ready access to equity and debt financing, and many maintain acquisition teams whose entire job is to seek out and execute ownership transitions. The private equity–backed company Premier Education Partners has sent unsolicited letters to childcare programs in the Midwest, seeding the ground for acquisitions by asking, “Have you ever considered how you might transition your business to a new owner?”

Potential Models

All of the models described will be vastly more effective if they are implemented within a childcare system with strong public funding and robust guardrails against profit-maximizing behavior. With nearly unlimited access to capital markets and debt financing, chain companies may be able to “outbid” alternative models if guardrails do not exist. While details are outside the scope of this brief, any additional public funding should be designed to ensure that private entities cannot extract undue profits from public monies if they act against the public interest around childcare.

The presence of public funding will also allow childcare offerings to become more abundant, sustainable, and high quality in geographies where chains are not active. Due to lower earnings potential, many chains are not interested in acquiring or building sites in less affluent and less dense areas. For instance, the private equity–owned chain The Learning Experience will only build sites where there is a minimum of 75,000 people in a five-mile radius and an average annual household income of at least $85,000. Indeed, as it stands, childcare is what former US Treasury Secretary Janet Yellen once described as a “textbook example of a failed market.” Without public funding, childcare programs must charge high fees that still do not cover the true cost of operating a high-quality, sustainable program; hence, many struggle to retain staff and keep their doors open. In communities where parents do not bring in enough income to bear those high yet inadequate fees—communities that are of little interest to chains—there is a high risk of childcare supply dwindling further.

The proposed models are offered here in order of increasing levels of public investment, with the first representing the lowest lift from a public standpoint and the last representing the highest lift. There are pros and cons to each model, and impact may not scale linearly with intensity. What’s more, an ecosystem of multiple models would likely produce the best outcomes. In many cases, these models are either untested or rest on little precedent: This is truly an area for policy entrepreneurship, and stakeholders attempting to implement any of these models should do so in the spirit of learning and innovation. Finally, several of these models could be applied as mechanisms for supply-side expansion: That is, they could also support the construction and development of entirely new childcare sites, though this brief focuses on the acquisition of existing sites.

I. Create a Childcare Acquisition Marketplace and Offer Technical Assistance

A first-order problem in acquisitions is that small providers and governments may simply have no knowledge of which programs in their community are looking to sell or whether an acquisition is viable. This includes information such as whether the current owner is looking for someone to take over an existing lease, to sell their building and/or land, to sell their brand and/or client roster, and so on down the line. Meanwhile, larger investors and chains have the financial and technical resources to gather this information and navigate commercial real estate databases. This creates a disequilibrium whereby large investors and chains are more able to make acquisitions—often before any other potential buyer is aware an opportunity exists.

To start addressing this problem, states or a statewide childcare nonprofit (such as a Childcare Resource and Referral Agency) could set up a simple website that enables would-be sellers to post their offerings and would-be buyers to make connections. Such a transparent and dedicated marketplace would help level the playing field.

A marketplace could also help with transition of family childcare (FCC), or home-based, businesses. While family childcares are not generally positioned to sell their facilities, as they double as their homes, these businesses may wish to sell their brands and client lists to other FCCs. This would allow for minimized disruption to families and a smoother off-ramp or retirement process for the exiting business owner.

In addition to access to a robust, well-maintained marketplace, nonprofit and community-based operators need support to navigate the complex world of real estate transactions. Certain organizations, including Community Development Financial Institutions (CDFIs) like the Low Income Investment Fund and Local Support Initiatives Corporation, have experience offering such technical assistance through workshops and one-on-one coaching. These offerings could be expanded and institutionalized across the country.

Pros: Relatively low lift; may be an enabling condition for other solutions; can be easily paired with higher lift proposals below

Cons: Unlikely to be impactful enough on its own to cause a dramatic change in the ownership transition landscape

II. Support Childcare-Focused Real Estate Investment Trusts—with Strong Guardrails 

Real Estate Investment Trusts (REITs) are tax-advantaged investment vehicles in which investors pool resources to buy income-producing real estate. Importantly, the structure can be used either for or against the public interest. Private equity firms regularly use REITs to, as a trio of scholars puts it, “aggressively buy up property assets [including in human service sectors, such as nursing homes and hospitals] and manage them to extract wealth at taxpayers’ expense.” At the same time, REITs can be designed and operated in ways that help working communities. If public pension funds, philanthropic impact investors, and other investors looking to advance community childcare interests wish to do so while still making a reasonable return, a carefully designed REIT may be a promising option.

While REITs commonly invest in a diverse portfolio of real estate opportunities, at least one existing REIT focused on childcare has an explicit mission to do so in ways that boost supply and access. Care Access Real Estate (CARE) is a REIT developed by impact asset management company (and social impact “B” corporation) Mission Driven Finance. Currently, CARE is focused on family childcare homes; the group owns 22 properties that it leases to licensed providers who then also reside in the home. The firm owns properties mainly in Clark County, Nevada, as well as a few in San Diego and western Colorado, and is looking to begin purchasing center sites in the near future.

CARE employs a hybrid model wherein private investors can expect market-rate returns (far below what investors in private equity funds expect), while public or grant dollars are used to discount rent for the family childcare operator and to provide capital funds for renovation and maintenance. The fund is set up to be responsive to community needs and to support the long-term sustainability of not just owners’ businesses but their families. Community partners help identify prospective tenants for the properties, after which CARE and the tenants discuss a viable rent payment and “match” the provider with an equivalent property. All leases include a voluntary opportunity for the family childcare operator to move toward ownership of the home, with the operator and the REIT splitting the asset appreciation 50-50 at sale.

It remains to be seen whether CARE is a scalable model, particularly at the center level, but well-designed childcare REITs could offer an intriguing opportunity for community-minded investors. Local or state governments may also be able to play a coordinating role in connecting stakeholders interested in launching a childcare-focused REIT. However, particularly if government is involved, conditions should be attached to the REIT to prevent undue profit seeking or landlord tactics (hiking rent, lease terms that disadvantage tenants, etc.) resulting in an unstable or lower-quality childcare supply. To that end, it will be important to ensure that any childcare REIT garnering public investment maintains a written commitment to equitable supply building and does not pursue more than market-rate returns.

Pros: Puts a player in the market that is expert at real estate transactions in ways that can rival chains; allows private investment to be channeled for the public good in a win-win fashion

Cons: Currently unclear whether the model can scale to the extent needed; precedent currently only exists for family childcare homes; REITs designed without appropriate guardrails could lead to negative consequences for the childcare sector

III. Allow Public Grant Dollars to Be Used for Childcare Acquisitions in Priority Areas

The Child Care and Development Block Grant (CCDBG), the main source of federal childcare funding, states that funds “cannot be expended for the purchase or improvement of land, or for the purchase, construction, or permanent improvement (other than minor remodeling) of any building or facility.” While this restriction ensures public dollars are being used primarily to serve families, enabling trusted community-based providers to use limited federal childcare funds to support acquisitions in priority areas would be a reasonable extension of access priorities. State governments could use the quality improvement dollars that flow through CCDBG to create a grant pool that could be accessed by trusted providers who have identified a promising acquisition opportunity.

While they would need to be defined by the government, priority areas could reasonably include licensed-childcare deserts, as well as census tracts with high concentrations of low-income children. Increasing childcare supply in these areas ensures that public dollars are serving the public good rather than adding supply in already served affluent areas.

Indeed, the US Administration for Children and Families has noted there may be certain flexibilities in this restriction when it comes to recovery from major disasters. This does not require the allocation of new money. Ultimately, however, a change of this nature would likely require Congressional action. Furthermore, this would be a much more viable option in a fully funded system instead of one marked by funding scarcity, both because using CCDBG funds for this purpose takes away from the available funds for other purposes like affordability and quality improvement and because, in priority areas with little licensed childcare supply to begin with, supporting acquisitions can only go so far.

In a similar vein, many state childcare grants have equivalent restrictions or require that the grant funds be spent in a certain time period—that is, programs may not use them to maintain a reserve—which is misaligned with often-lengthy acquisition processes. States should consider establishing limited exceptions for targeted supply building.

Pros: Leverages existing funding sources

Cons: Requires statutory and/or regulatory changes; without enough public funding in the system, may result in making less funding available for other critical childcare needs

IV. Elevate Opportunities to Transition to Worker- or Parent-Owned Cooperatives

When an owner is getting ready to sell their childcare program, the next owners may well be within the building already. Worker- or parent-owned childcare cooperatives (“co-ops”) are not widespread in the United States, although a handful do exist; data from 2007 suggest roughly 1,000 exist nationwide.² They are nevertheless quite common in other countries; around 10 percent of New Zealand’s childcare sector is made up of such co-ops.

Co-ops have several advantages, including allowing those who understand the children and families in a given program best to make democratic decisions (as joint owners, there is a lower threshold for leadership roles and generally a flatter authority structure) and offering individuals an opportunity to gain wealth through ownership.

Financial resources are already available for making the transition to a co-op. For instance, the IRS offers a substantial tax benefit in allowing owners to defer capital gain taxation upon qualified conversion to a worker-owned co-op. Some states, such as Colorado, offer significant tax credits for conversions to co-ops, and a variety of grants and loans are available in different geographies.

However, as the Open Markets Institute and National Women’s Law Center explained in a 2024 report, Children Before Profits: Constraining Private Equity Profiteering to Advance Childcare as a Public Good:

The biggest barrier to workers being able to buy out their employer is the challenge of raising the money they need to make this purchase. Unfortunately, whereas private equity can apply for a loan while using the value of the entity it intends to buy as collateral, workers interested in making the same purchase cannot list the business as an asset in their loan applications. Instead, lenders will usually look at workers’ personal income as childcare providers to assess their suitability for a loan. Unsurprisingly, childcare workers’ incomes are so low that they often cannot secure the funding they would need to become joint business owners.

The authors suggest that, as one solution, the Small Business Administration could “change its lending conditions to exempt workers trying to create co-ops from requiring a personal income guarantee.”

In order to make conversion to co-ops more viable, governments will also likely need to invest in both education and technical assistance around the model. It is safe to assume most individuals in the childcare space—owners, staff, and parents—are only passingly aware of co-ops, and many owners likely do not even consider conversion as an option. Technical assistance is necessary to navigate both the process of setting up a co-op and accessing the financial resources described above. Finally, as the Children Before Profits report points out (and related to the following model, an ownership transition fund), workers or parents will likely require access to capital in order to make a competitive financial offer to owners.

Pros: Conversion to cooperatives can minimize disruption for enrolled families, increase democratic decision-making, and build wealth for workers or parents who become owners.

Cons: Conversion to a cooperative is a complex process that not many people even consider, and it is a difficult model to scale up.

V. Create a Childcare Ownership Transition Fund

Quite simply, most nonprofit and community-based providers lack access to the money needed to buy another childcare program. In many cases, they lack the money needed to even take over a lease and establish a new site. And even if they can acquire a site, they then lack the money for commonly needed renovations. Per Mission Driven Finance’s Laura Kohn, the average asking price for single-tenant childcare programs on the leading commercial real estate database is around $2.5 million.

A Childcare Ownership Transition Fund (CCOTF) could combine government money, philanthropic dollars, business donations, and other sources of private financing in order to offer grants, low-to-zero-interest loans, and/or loan guarantees that allow providers to access capital markets. Providers who wish to acquire another program would apply to the Fund and be selected for funding on the basis of various criteria, including the population served by a potential acquisition, applicants’ track record around health and safety and quality, the financial health of the applicant, and so on. Importantly, a successful Fund will need to be able to make decisions nimbly: Drawn-out funding decisions would give a strong competitive advantage to for-profit chains and fail to allow for a timely and smooth transition for programs that are otherwise on track for closure.

It may also be possible to structure CCOTFs so as to incentivize childcare business owners to sell to a trusted community provider, particularly those who are selling because they are planning to retire. For instance, governments could set up some kind of tax advantage, such as a tax credit or a reduction in capital gains tax, or provide a one-time payment (outside of the sale itself) into a retirement account for those who sell to trusted community providers.

Given the complexities involved in financial transactions, a CCOTF should likely be administered by a CDFI, small business administration, or a community foundation with relevant experience. The Fund could also be structured as a trust fund or other form of permanent endowment in order to secure sustainability.

Pros: Enables access to capital that offers nonprofit and community-based programs a viable opportunity to purchase additional childcare sites; can be designed to meet local priorities, such as increasing supply in certain geographic areas or among certain populations 

Cons: Requires a high amount of up-front funding and coordination; programs may still be “outbid” by for-profit chains on the open market absent guardrails

VI. Have the Government Purchase Childcare Programs Directly

This model expands on the Childcare Ownership Transition Fund. Governments themselves, rather than nonprofit or community-based providers, could tap into such a Fund to be the purchaser of an on-market or closing program. Once in possession of the facility, a government would then have three choices: directly operate a childcare program itself, directly lease the program to a trusted operator, or hand the property over to a third party (such as an REIT with concrete guardrails and conditions) to act as the landlord.

It is feasible for government or quasi-governmental entities to directly operate a childcare program. For instance, in 2023 the small town of Blowing Rock, North Carolina, opened a childcare program for town employees. The program is operated by the local Parks and Recreation Department, and all staff hired become town employees. (Note: The program did not require the purchase of a new facility but rather was housed in a renovated community center the town already owned.) Similarly, York College (part of the public City University of New York system) purchased a dilapidated historic church, redeveloped it, and in 2009 opened it as the York College Child and Family Center, offering childcare services for children of York students. In both cases, public funds were used for the purchase and/or renovation.

Alternatively, a government may prefer to lease the space to an existing provider who wishes to expand or one that is in danger of losing its existing lease and shutting down. Doing so at below market rate can help providers stay financially sustainable. A related precedent for such a model can be found among school districts, such as Missoula, Montana, that have chosen to lease unused school buildings to community childcare programs. If a government does not wish to take on the challenges of serving as a landlord, a third party could be identified so long as that third party agreed to abide by conditions ensuring that rent would remain at or below market rate, that the facility would be used for community benefit, and other relevant guardrails.

Another model, combining aspects of the co-op model, would be to create an administrative entity that acted as a pseudo–public utility. As Capita’s Joe Waters has explained, such an initiative could look to the Rural Electrification Administration as a precedent:

The government would direct funds to some of the nation’s neediest areas and create a path to ownership of those assets by communities that need them. These child-care assets could be cooperatively governed and owned by the childcare workers, the families who participate in the childcare (just like consumer-owned electric cooperative[s] operate), or some combination of the two. The federal government would provide initial funding through forgivable loans, but local communities or workers would own these centers. If a childcare cooperative made a profit after paying its workers a living wage, excess revenues could be distributed to the member-owners.

Governments can also take a direct hand in supporting transition of family childcare providers. As noted, FCCs are generally not looking to sell their homes, but governments could purchase their client lists and offer them for free or a nominal fee to a vetted FCC provider in the same neighborhood, or as an enticement for a new FCC to open in the neighborhood. Given the vital importance of trusted relationships among FCCs, such actions should be taken carefully and in close consultation with the selling provider. Staffed family childcare networks, which already exist in many states and which provide a variety of services to FCC programs, may be natural places to house such an initiative.

Pros: Allows government to make strategic purchases of childcare facilities and to have a high degree of control over how the facilities are used for the public good; skirts challenges around small providers accessing capital markets

Cons: Government procurement is commonly a lengthy and bureaucratic process involving needed approvals from elected officials; if leasing space, government must take on the responsibilities of a landlord, including ongoing maintenance of the property

Conclusion

In order to operationalize an ecosystem of ownership transition models that benefits the public interest, governments should first identify a coordinating individual or body (such as an existing office or task force). In the current political environment, the best level for such action is likely state governments and/or major city and county governments. The coordinating entity should lead research and engagement of childcare stakeholders—including financial institutions like CDFIs—to identify context-specific needs and assets and to develop the model or models that make the most sense. 

If the childcare sector continues to have no publicly supported ownership transition models, the consequence will reliably be more program closures and more market share flowing to large investor-backed chains. However, such models can position childcare as the essential part of social infrastructure that it is, leading to a healthier sector, better supported staff, a more secure retirement and legacy for owners, and an abundance of high-quality options that serve the diverse needs of America’s children and families.

Footnotes

1. For more research into financing childcare, see Strong Foundations: Strategies for Child Care Capital and Supply-Building Solutions, from Executives Partnering to Invest in Children (EPIC). ↩︎
2. This is the most recently available data; as childcare cooperatives are not a major component of the US childcare system, they are the subject of relatively little research. ↩︎

Suggested Citation

Haspel, Elliot. 2025. “‘Have You Ever Considered How You Might Transition Your Business to a New Owner?’: The Need for Publicly Supported Childcare Ownership Transition Models.” Roosevelt Institute, June 26, 2025.

Acknowledgments

Capita and the Roosevelt Institute thank Angie Garling and Kim DiGiacomo of the Low Income Investment Fund and Laura Kohn of Mission Driven Finance for sharing their insights as part of the research process, and Audrey Stienon of the Open Markets Institute for reviewing a draft. Roosevelt staff Suzanne Kahn, Oskar Dye-Furstenberg, Aastha Uprety, and Katherine De Chant also provided feedback, insights, and contributions to this paper. Any errors, omissions, or other inaccuracies are the author’s alone.  

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