Childcare & Daycare
Valuation Multiples

How Childcare Businesses Are Valued: SDE vs. Adjusted EBITDA

Before any multiple means anything, you have to know which earnings figure it is being applied to. In childcare this matters more than in most sectors, because the market straddles two different conventions and owners routinely compare numbers built on different bases.

A single owner-operated center, where the owner is also the director or works in the building daily, is usually quoted on seller's discretionary earnings. SDE adds the full owner compensation back to profit, on the logic that a buyer stepping into the owner's role captures that salary. Multi-site operators are valued on adjusted EBITDA, which adds back only the portion of owner compensation that exceeds a market rate for the job actually performed, because a buyer of four centers still has to pay someone to do the work.

The gap between those two conventions is not academic. If you pay yourself $130,000 to run a center and a director's market salary in your area is $65,000, an SDE presentation adds back $130,000 and an EBITDA presentation adds back $65,000. Same business, both presentations honest, two different earnings figures. Apply a 3x multiple to each and you get a difference of nearly $200,000 in headline value from a definitional choice. Our guide to EBITDA and business valuation basics walks through how adjusted earnings get built and which add-backs survive a buyer's review.

When you read a multiple online, the first question is which figure it applies to. A 4x quoted against SDE and a 4x quoted against EBITDA describe materially different prices for the same center, and the sources publishing these ranges are not always explicit about which one they mean.

What the Market Data Actually Says

Childcare is an unusual sector to research because the demand-side data is excellent and the transaction-multiple data is poor. It is worth separating the two rather than treating everything you find as equally reliable.

The structural picture is well documented. Ankura, writing in January 2025, put US childcare industry revenue at $71.8 billion for 2024, with roughly 95% of providers operating as small independent businesses and the two largest operators, Learning Care Group and KinderCare Learning Centers, holding just 4.6% of market share combined (Ankura). The same analysis reports average industry profit margins of 11.0%, staffing costs at 47.8% of revenue, an average industry wage of $23,964, and a critical occupancy threshold for profitability of about 70%. Those operating benchmarks are the most useful numbers in this article, and we return to them below.

A word of caution on industry size, because it illustrates how carefully these figures need to be read. Ankura's $71.8 billion describes childcare broadly. Navagant's Q3 2024 sector report, citing IBISWorld, puts the US Early Childhood Learning Centers industry at $22.6 billion with a 3.6% compound annual growth rate from 2019 to 2024 — and a chart inside that same report shows US ECE market revenue at $16.3 billion in 2024, rising to $17.2 billion by 2029 (Navagant). Three figures, three definitions, one of the discrepancies sitting inside a single document. None of them is wrong; they are counting different things, from home-based family care to licensed center-based programs. If you see a market-size number quoted without its definition, it is not telling you much.

On consolidation, the ownership picture is clearer than the volume picture. Navagant reports that eight of the eleven largest US childcare chains by capacity are now owned by private equity groups, including KinderCare Education, Learning Care Group, Goddard Systems, and Primrose Schools. Tyton Partners, writing in May 2024, sized PE-backed chains at roughly 10% of the childcare market measured by students served, around 750,000 children daily, and noted that larger for-profit center providers grew market share by 8% between 2020 and 2022, primarily through roll-ups of smaller chains and independent programs (Tyton Partners).

Transaction volume has been uneven rather than steadily climbing, which matters if you are timing a sale. Navagant, citing PitchBook, reports global ECE M&A transactions of 267 in 2019, 186 in 2020, 306 in 2021, a record 342 in 2022, and 245 in 2023, with 98 transactions in the first half of 2024. The buyer mix shifted alongside that: the 342 transactions in 2022 split 159 financial buyers (46%) and 183 strategic buyers (54%), while the 2024 first-half figures ran 41% financial and 59% strategic.

Source: Navagant Early Childhood Education Industry Report, Q3 2024, citing PitchBook. These are global counts across the full ECE sector, including curriculum, EdTech, and education software companies, not US center transactions alone. The report is nearly two years old as of this writing, and we have not found an equivalently detailed update.

What that data does not contain is a multiple. No major transaction database publishes childcare as a separate category with EBITDA multiples by deal size, which is why every multiple ladder you will find online traces back to a brokerage or advisory firm's own marketing page rather than to transaction records. We use those ranges below because they are what exists, and we label them each time.

Who This Article Is For

This article is for you if you own one or more licensed childcare centers and want to understand where your business sits before you talk to an advisor. It builds on Salt Creek's guide to M&A advisors for early childhood education, which covers the buyer landscape and process, and goes deeper on valuation specifically. Most owners we work with run founder-owned or family-owned companies with roughly $2 million to $75 million in revenue and generally at least $500,000 of adjusted EBITDA, which in childcare terms usually means somewhere between two and twenty centers, though a single large center can clear that bar. If you own one modest center, much of the mechanism below still applies, but your likely buyer is an individual operator or a small regional group rather than a private equity platform, and the ranges at the top of the ladder are not your market. Treat what follows as a map, not an appraisal.

The Four Segments Buyers Sort Centers Into

Buyers tend to file childcare businesses into four groups, and the group you fall into determines which buyers even look at you. The lines are qualitative and real businesses blend across them, but the sorting is fairly consistent.

Single-Site Owner-Operated Centers

A single center where the owner is present daily sits at the bottom of the ladder, generally quoted around 2x to 4x adjusted earnings on broker-published ranges, with some brokerage pages putting centers under $100,000 of EBITDA nearer 2x to 2.5x and well-run centers above $200,000 of EBITDA at 3x to 4x. Those figures come from advisory marketing pages, not transaction data.

The discount is not arbitrary. A buyer looking at a single owner-operated center is buying a business where the owner is the director, the enrollment engine, the relationship with every parent, and frequently the substitute teacher. Remove that person and a meaningful share of what produced the earnings leaves with them. The buyer pool reflects this: individual operators and SBA-financed buyers dominate at this level, and institutional capital largely does not participate, so there is less competition to bid the price up.

The most valuable thing an owner at this level can do is separate themselves from the operation. A center with a director who is not the owner, documented enrollment and curriculum processes, and staff who do not depend on the owner's daily presence is a different asset from one where all of that runs through one person, even at identical EBITDA. That work takes quarters rather than weeks, which is why it belongs in the planning window described in our guide on when to start exit planning.

Small Multi-Site Operators (Two to Four Centers)

At two to four centers, broker-published ranges move to roughly 3x to 5x, and something structural changes: the business now has to have management that is not the owner, because one person cannot be the director of four buildings. That forced professionalization is exactly what buyers are paying the higher multiple for.

This band is also where the valuation convention shifts from SDE to adjusted EBITDA in most conversations, and where a buyer starts underwriting the portfolio rather than the site. Consistency across locations becomes a question: are all four centers licensed in good standing, are occupancy rates comparable, is one location carrying the other three? A portfolio where one strong center masks two weak ones gets underwritten on the weakness, because the buyer is acquiring all of it.

Regional Platforms (Five to Fifteen Centers)

Five to fifteen centers is where private equity becomes a genuine buyer rather than a theoretical one, and broker-published ranges move to roughly 4x to 6x. The business is now large enough to be a platform — a base a sponsor can add centers onto — and platform status is worth real money because the buyer is pricing what the business could become under their ownership, not only what it earns today.

Given the fragmentation Ankura describes, with 95% of providers independent and the top two operators holding 4.6% of the market, a well-run regional platform is a scarce asset. There are many centers and few organized multi-site operators with clean financials, consistent branding, and centralized enrollment. That scarcity, more than any operating metric, is what pulls this band's multiples up.

Buyers at this level are also underwriting your systems rather than your centers. Centralized enrollment and marketing, standardized curriculum, consistent financial reporting across sites, and a regional management layer are what allow a sponsor to integrate acquisitions afterward. A group of five centers run as five independent businesses under common ownership is not a platform, and it tends to get priced closer to the band below.

Institutional Platforms (Twenty or More Centers)

Above roughly twenty centers, broker-published ranges reach 6x to 9x, and the business is being valued as an institutional asset rather than an operating company. Buyers are other sponsors, strategic consolidators, and occasionally public companies. Navagant's transaction record gives a sense of the capital involved at the top of this market: Roper Technologies acquired childcare management software developer Procare Software for $1.86 billion in January 2024, BPEA EQT privatized Japanese education and childcare operator Benesse Holdings in a $1.37 billion transaction in March 2024, and Navagant noted Roark Capital exploring a sale of Primrose Schools that could value the franchise at nearly $2 billion.

Very few owner-operated businesses reach this band, and the reason it belongs in this article is calibration. When you encounter a headline childcare multiple in the press, it is almost always describing this segment, and it is not the market a five-center operator is selling into.

Segment Comparison at a Glance

The table places the four segments side by side. Every multiple below is broker-published rather than drawn from transaction records, and real businesses frequently sit between bands.

These ranges reflect figures published on brokerage and M&A advisory websites. We have not located a transaction database that publishes childcare multiples by operator size, and we would rather tell you that than dress up marketing figures as data. None of these are Salt Creek valuations. They are market context, not a substitute for reviewing your financials.

What Actually Moves the Number Inside Your Band

The band sets a range. These factors decide where inside it you land, and several of them can move value more than climbing a band would.

Occupancy is the single largest lever, and the mechanism is arithmetic. Ankura puts the critical occupancy threshold for profitability at roughly 70%, with staffing at 47.8% of revenue and average industry margins near 11.0%. Because a licensed center's cost base is largely fixed — the building, the utilities, the director, and the minimum staffing required by ratio — enrollment above the breakeven point drops toward the bottom line at a very high rate. A center at 88% occupancy is not 22% more profitable than one at 72%; it can be several times more profitable, and the multiple is applied to that difference. This is why we tell owners with recovering enrollment that a year of occupancy work is often worth more than a year of negotiating over a turn of multiple.

Staffing is a regulated cost rather than a management lever. This is the most misunderstood feature of childcare economics for buyers coming from other sectors. Teacher-to-child ratios are set by state licensing law, so you cannot protect margin in a soft enrollment period by thinning staff the way a restaurant or a services business can. Labor scales with enrollment on the way up and largely does not scale down on the way down, until you close classrooms. Combined with an average industry wage that Ankura puts at $23,964, this makes wage-floor movements and local labor shortages a direct and unhedgeable margin exposure, and buyers underwrite it as such. If your state or municipality has scheduled minimum wage increases, expect a buyer to model them.

Rent normalization is where reported EBITDA most often falls apart. Childcare is a real-estate-intensive business and many owners own their buildings, frequently through a separate entity. If that entity charges the operating company below-market rent, or no rent, the operating company's reported earnings are inflated by the shortfall. A buyer will impute a market rent before applying any multiple, because after closing they are either paying you rent under a new lease or paying a third-party landlord. The deal then separates into two negotiations: the operating business at a multiple of rent-adjusted EBITDA, and the real estate at its own value. Owners who have modeled a blended number without running that adjustment are almost always starting from a figure no buyer will accept, and discovering it late in a process is a bad way to find out.

Licensing and change-of-ownership mechanics sit on the critical path. Licensing is state-administered and a change of ownership commonly triggers a new application, an inspection, or both. Because a buyer cannot operate before that resolves, it becomes a closing condition, a holdback, or a transition arrangement where the seller remains the license holder temporarily. The rules differ enough by state that we will not summarize them here, and your counsel and your state agency are the right sources. The planning point holds everywhere: this belongs in your timeline early, not in the last three weeks.

Revenue mix and subsidy concentration get treated like customer concentration. Public funding is a legitimate and often stable revenue source, but it carries policy risk private tuition does not, and the expansion and wind-down of pandemic-era relief showed how fast a funding stream can change shape. A buyer will want your earnings shown with and without temporary programs, and heavy dependence on a single program tends to be addressed through structure — escrow, earnout, or a holdback — before it is addressed through price. That pattern is not specific to childcare; our guide on what buyers look for in an acquisition target covers how concentration is priced across the lower middle market.

Waitlists, tenure, and rate history are the closest thing childcare has to contracted revenue. No parent signs a five-year contract, so buyers look for the next-best evidence that enrollment is durable: a genuine waitlist, average length of enrollment per family, sibling enrollment rates, and a history of successfully raising tuition without losing families. A center that has raised rates 4% annually for five years with stable occupancy has demonstrated pricing power, which is a stronger signal than a high current occupancy figure achieved by holding rates flat.

Owner dependence remains the largest swing at the small end. When the owner is the director, the enrollment engine, and the face parents trust, buyers see value residing in a person rather than a business, and they respond with earnouts, extended transition requirements, and rollover expectations. Our guide to how a sell-side process compares to working with a business broker covers how that dependence gets structured around.

How Childcare Multiples Compare Across the Lower Middle Market

Childcare sits below the middle of the lower middle market on multiples, and the comparison explains why.

• Against the broader lower middle market. GF Data, the standard source for lower middle market transaction multiples, reports averages in the mid-5x to low-7x range across all industries at the sizes most owner-operated businesses occupy, with a pronounced size premium as deal value rises. Childcare's broker-published bands sit at or below that across the smaller segments, which is what you would expect from a business with regulated labor, real-estate dependence, and no contracted revenue. Our guide to EBITDA and valuation basics covers those cross-industry brackets.
• Against recurring-revenue services. The contrast with managed IT services is instructive. An MSP with contracted, assignable, multi-year revenue trades at a premium precisely because the revenue survives a change of ownership on paper. Childcare enrollment is durable in practice but contractual almost nowhere, so buyers pay for demonstrated retention rather than documented obligation. See our MSP valuation multiples guide for how that premium is priced.
• Against other consolidating sectors. Childcare buying is substantially a roll-up story, and negotiating against a serial acquirer with a model and a pipeline is a different exercise from negotiating against a one-time buyer. See why roll-ups are heating up, and our guide on strategic versus private equity buyers for who shows up at each size.
• Against the public comparables. Multiples.vc data from May 2026 shows KinderCare at roughly 10.5x EV/EBITDA and 1.0x revenue, on about $3 billion of revenue against a market capitalization near $424 million (Multiples.vc). The distance between that enterprise multiple and that market cap is itself the lesson: a large share of enterprise value in a leveraged public platform is debt, and an owner reading 10.5x as a benchmark for their centers is reading a capital structure, not a valuation for their business.

Getting a Range Specific to Your Centers

The ranges above tell you where childcare businesses generally trade. They cannot tell you where yours would land, because that depends on details a buyer examines directly: enrollment by classroom and by age band, your lease or your rent arrangement with yourself, licensing status and history, staffing against ratio, and the share of revenue that comes from public programs.

A preliminary valuation conversation is how a market range becomes an estimate that reflects your actual business. Jack and Connor handle these directly. We work on a success-fee basis with no upfront retainer for standard M&A engagements, so an early conversation carries no cost and no obligation to sell.

If you want to understand your options, start with our guide to M&A advisors for early childhood education, then review how Salt Creek approaches business valuation and how a lower middle market sale process actually unfolds.