Why daycares equal profits

Delivery apps and financial tech are out. For some investors, it’s all about daycare.   

Driving the news: Ever since the federal government announced it would put $30 billion towards childcare (to increase access and affordability), private equity firms and institutional investors have taken an interest in the toddler-focused biz, per The Globe and Mail

Why it matters: When government money starts flowing into any industry, investors take note. Without a framework that establishes requirements around how that money can be spent, the quality of goods or services can be compromised in the pursuit of profits.  

  • One national study found that, on average, non-profit centres did better than for-profit ones on measures such as higher wages, staff training, and child-to-worker ratios.

  • Similar private investments into dental and veterinary clinics (industries that are booming with opportunity and facing labour shortages) are also currently playing out

For instance, daycares that are located in desirable locations, offer nutritious meals, and teach children STEM subjects will carry significantly more costs than daycares that cut costs by opting for cheaper rent, lower-quality food, and paying educators a minimum wage. 

  • “You don’t open a daycare to get rich,” one operator told The Globe and Mail. She added that many daycare owners she knew had received interest from buyers. 

Yes, but: Although the federal deal is intended to prioritize non-profit centres, a for-profit sector backed by private equity might be better positioned to create enough supply to meet the government’s mega-target of 250,000 new licensed spaces across Canada by 2026. 

What’s next: As investors take baby steps toward their next biz opportunity, governments are in the process of negotiating accountability rules that will guide the for-profit sector.