SWP’s Market Insights for Q3 2022
SchoolWise Partners has been busy amid the typically slower summer wind down. Below, we’ve rounded up key insights and notable deals that have kept our team busy this season.
Child Care Industry Backdrop
Resilient Transaction Activity. M&A activity remains resilient in 2022, but further shocks in the economy and childcare sector could derail outlook. Strategic buyers drove most of the activity with increased confidence and available capital.
Maturing Seller’s Market. School owners have become increasingly more engaged as enrollment and financial performance rises well beyond pre-covid levels and in some cases to record highs. Looming margin pressure and rising wages are fogging the outlook and encouraging providers to pursue selling today.
Rising Wages & Labor Turnover. The labor shortage has impacted the ability of childcare providers to take on additional enrollment to meet rising demand for care. Our survey found the labor shortage has reduced occupancy rates by about 5 to 8% on average. This impact is also leading to higher wages and placing more emphasis on expanding employee benefits offerings.
Aggressive Tuition Increases: SchoolWise surveyed a wide range of school providers and learned that the average tuition rate increase for the next academic year was roughly 5% among the premium provider segment. This rate is higher than previous years and reflective of the overall inflationary environment across the board.
Child Care Provisions Cut from Inflation Reduction Act. Despite being proposed in the Build Back Better, the Inflation Reduction Act did not include universal pre-kindergarten, paid family and sick leave and the enhanced child tax credit, among other provisions, but those were ultimately eliminated during negotiations.
Delayed KinderCare IPO. The largest child-care company in the U.S, KinderCare, refiled for an initial public offering in March 2022 after delaying its original offering one day before the stock had been set to begin trading in November. The company cited regulatory issues as the cause for this delay.
SchoolWise Partners acted as the exclusive sell-side advisor on various transactions that closed in Q2 and Q3 2022; representing approximately $75 million in transaction value for its clients. In addition, our team is currently advising on various school sale transactions for its clients in the child care sector, that represent approximately $100 million in transaction value and expected to close over the next 6 months. If you are interested in selling your school business or real estate, please reach out to one of our team members for an introductory call.