Background:

Our franchisor, previously a privately held company, was purchased by Sycamore Partners, a private equity (PE) firm, in 2022. While the answer to this FAQ may not reflect Sycamore Partners’ plans for our franchisor because their plans have not been shared with us, according to franchise industry lawyers, this answer reflects common practices for PE firms.

When PE firms acquire a business, they usually have a five-to-seven-year ownership horizon during which time they seek to grow revenues and profits. At the end of their ownership horizon, PE firms usually plan to take the company public or sell it to another PE firm that has other ideas about how to generate more revenue and profit from the business.

What might PE ownership of a franchisor mean to franchisees?

To grow a franchised business, PE firms may invest in activities that foster growth and look for ways to reduce the franchisor’s operating costs through headcount reduction and by passing on service costs to franchisees through increased royalties or fees as allowed by franchise agreements.

To facilitate a PE firm’s growth objectives, franchisors may ramp up branding activities to build perceived value that attracts new franchisees and customers, and to bolster a future sale price. They may also seek to expand the number of physical locations to increase market share and revenues. And they look for ways to further increase profits by maximizing fees (e.g., marketing, technology), and adding new revenue streams from which royalties can be derived (e.g., new programs, services, products).

The bottom line for franchisees is that during a period of PE ownership – and afterward – they can expect:

  • increasing pressure to increase revenues – even if ways promoted by the franchisor to increase topline revenues are not very profitable for franchisees to adopt;
  • increases in existing fees as well as new fees to the extent they are allowed by franchise agreements; and
  • increasing standardization across all locations (e.g., hours of operation, programs, location management, franchise agreements).

If our franchisor is taken public by Sycamore Partners before some of the other large childcare franchises are taken public by their PE owners, it would be the first franchised childcare business to go public. The two childcare businesses that have been taken public as of December 2024 are Bright Horizons and KinderCare Learning Companies, both of which operate centers wholly owned by the company.

The KinderCare IPO:

As a case in point of what can happen when a private equity firm acquires a childcare enterprise, after being loaded up with $1.6 billion in first lien term debt, KinderCare Learning Companies (KinderCare Learning Centers, Crème Schools, and Champions), acquired by Partners Group in 2015, were taken public nearly 10 years later in a NYSE IPO on October 9, 2024.

24,000,000 shares of common stock (approximately 30% of total shares) were offered in the $24-$27 range, selling for $576 million and resulting in a company valuation of approximately $2.75 billion. Partners Group, its affiliates and advisees, retained approximately 70% of the common stock. A little more than two months later (December 20, 2024), shares were trading around $17.50, down approximately 30% from the IPO, resulting in a reduced company valuation of approximately $1.9 billion.

About KinderCare (and Bright Horizons)

According to Partners Group, KinderCare, founded in 1969, is the largest private provider of early childhood education in the US as measured by the potential of its 2,400 centers with capacity to serve 200,000 children. Bright Horizons Family Solutions, Inc. is the second largest and is also publicly traded with a significant portion of its stock held by Bain Capital, the private equity firm that took it public. KinderCare centers are wholly owned by the parent company, just like Bright Horizons. KinderCare brands fuel growth mainly by acquiring existing centers. They serve families with children ranging from six weeks to 12 years old and in the fall of 2024, they employed more than 43,000 teachers and staff.

During the nearly 10 years KinderCare Learning Companies were owned by Partners Group, the private equity firm facilitated business transformations geared to support and accelerate growth. Transformation initiatives included optimizing center footprints, driving same-center revenue growth and occupancy, and investing in curricula, human capital, and technology.

Additional Reading

To learn more about the impact private equity ownership of childcare centers and franchises is having on the industry and operators, read this in-depth article titled “The End User Is a Dollar Sign, It’s Not a Child”: How Private Equity and Shareholders Are Reshaping American Child Care, published by EarlyLearningNation.com. The article takes a deep dive into private equity and the childcare space where in the U.S. 9 of the 11 largest childcare center ‘chains’ are now either publicly held (e.g., Bright Horizons and KinderCare) or owned by private equity firms (e.g., The Goddard School®, Primrose School®, The Learning Experience®, etc.).