Private equity's influence on Dutch childcare: costs, quality, and market dynamics

The research examines over 9,500 daycare centers from 2016 to 2023, providing critical insights into how private equity reshapes a heavily regulated and subsidised market. 

Key findings: higher costs for parents and mixed impact on quality

Daycares owned by private equity firms charge approximately 3.4% more than non-PE-owned facilities. They also raise prices more sharply in response to increases in government parental allowances. This behaviour suggests a focus on profit maximisation, particularly in wealthier areas and in areas with less competition.

The study highlights contrasting quality trends. PE-owned centers exhibit fewer administrative violations and adapt better to stricter regulatory requirements, suggesting better management and compliance. However, labour-related violations are higher, pointing to potential underinvestment in staffing to cut costs.

Private equity's market share in areas where they are active has risen from 27% in 2016 to 32% in 2023. This growth highlights their strategic focus on local markets, where competition for daycare services is primarily localised. Private equity firms tend to establish new locations or acquire existing ones, further increasing market concentration. Following the introduction of stricter staffing rules in 2019, PE-owned daycares showed better compliance than their counterparts, suggesting an important ability to adapt to regulatory shocks effectively. With the policy aim of making daycare more accessible, the pressure on labour is likely to further increase, which may strengthen the case for private equity presence in this market. 

Policy implications

The findings underscore a tension between the profit motives of private equity firms and the societal goals of affordability and equitable access to childcare. While PE ownership improves certain operational aspects, higher costs and potential labour-related compromises pose challenges for public welfare.

Policymakers are urged to carefully monitor market concentration and pricing strategies, ensuring that private equity investments do not undermine the broader objectives of accessibility and quality in essential services like childcare.

This study contributes to the growing discourse on private equity's role in public-facing industries, offering a nuanced understanding of its impacts in a European context. It serves as a crucial resource for regulators and stakeholders navigating the intersection of business and societal priorities.