By Rob Burns - Transaction Advisory Services Director

Head of Day Nurseries sector

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CMA early years market study: what investors should watch

The Competition and Markets Authority has launched a market study into early years education and childcare services in England. At first glance, this looks like a policy and consumer issue. For anyone who invests in, lends to, buys or runs nurseries, it is something more consequential.

This is the first time a competition regulator has been asked to examine the underlying structure of a sector that has become one of the most heavily subsidised, politically visible and commercially active parts of the UK services economy.

In practice, the question is not simply whether childcare is affordable. It is whether the current market structure can sustainably deliver the capacity, quality and accessibility families need over the long term.

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Why the study matters beyond the policy pages

The scope is broad. The CMA has said it will look at access to childcare places and barriers to expansion, affordability for families and the sustainability of providers, the impact of funding arrangements and cost pressures, the role of different ownership models and provider types, and whether parents have sufficient information and choice when selecting a nursery. In practice, that is a review of almost every commercial lever in the sector.

The numbers behind it explain why this matters. England has more than 53,000 childcare providers looking after children up to four, offering around 1.6 million places. The sector is worth around £14 billion a year, of which roughly £8.9 billion now comes from the taxpayer through the expanded funded entitlements. Very few private markets in the UK are simultaneously that large, that fragmented, and that dependent on a single payer.

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Why now, and why this shape of review

The request from the Secretary of State was written on 26 May 2026, with the CMA asked to report by Spring 2027. That timeline runs alongside the wider Government Childcare Review announced in the Autumn Budget 2025 and the completion this autumn of the funded hours expansion. The CMA's work will land at exactly the point where policymakers are deciding what happens next to funding rates, workforce policy and the shape of the entitlements. This is unlikely to be a purely academic exercise.

The Secretary of State was also explicit that she wants the CMA to look at the role of private equity in the sector, and at whether the current mix of ownership models is working in the interests of children, parents and taxpayers. That single point is likely to focus investor attention more than anything else in the brief. Whatever one thinks of the political framing, the underlying question is a legitimate commercial one. When a large share of turnover is government-funded and margins are tight, ownership structure, capital structure and dividend policy all become matters of public interest whether the sector likes it or not.

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"The key question is not simply whether childcare is affordable, but whether the current market structure can sustainably deliver the capacity, quality and accessibility families need over the long term."

   Rob Burns, Transaction Advisory Services Director, Ballards

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Is this really about affordability, or about structure?

That distinction matters, because one is a pricing issue, while the other is a question of how the entire system operates.

The framing that childcare is “too expensive for parents but not paid enough to providers” has been true for years, and it is not really a competition problem. It is a funding-rate problem, and no market study will fix it on its own. The more interesting question, and the one I suspect the CMA will end up circling, is whether the current market structure can sustainably deliver the capacity, quality and accessibility that families and the economy need.

That question sits at the intersection of several trends anyone active in the sector will recognise. Demand has grown sharply on the back of the funded entitlements. Operating costs have risen through wage increases, employer national insurance changes, business rates, food and utilities. The workforce is stretched, with recruitment and retention consistently cited by operators as the single biggest constraint on opening new rooms. The provider base is shifting, with a marked decline in childminders in recent years, pressure on smaller independent settings, and steady consolidation into group operators of varying sizes and ownership types. Private equity has become a more visible participant, though it still represents a modest share of overall places.

None of this is inherently good or bad. But it is a genuinely mixed market operating under a single funding regime that was not designed with any of it in mind. That is the problem the CMA has been handed.

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What does this mean for buyers, sellers and lenders?

From a transactions perspective, the review will feed into how the sector is priced over the next twelve to eighteen months. Regulatory risk becomes a real diligence line, alongside the usual questions about occupancy, funded-hours mix, wage cost inflation and property. Funding adequacy sits at the heart of every long-term model, and if the CMA's work leads to a serious conversation about the true cost of an hour of care, that model changes. Market concentration will be looked at, and any recommendations touching consolidation or ownership disclosure would land squarely on the deal community. Growth opportunities remain, but the shape of them may shift, particularly where expansion depends on funded hours or capital investment in property.

In the conversations I have had with operators and investors this week, the reaction has been broadly pragmatic rather than defensive. The best-run groups already run their businesses in a way that would stand up to public scrutiny. Fees are transparent, funded hours are delivered on the terms the government intends, workforce investment is real rather than nominal, and quality is measurable. For those groups, the study is more likely to be a validation than a threat. For operators whose economics rely on opaque charging practices or on stretching the definition of funded provision, the next twelve months will be uncomfortable.

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The outcome worth arguing for

There is a version of this review that produces something genuinely useful. A clearer evidence base on the true cost of delivering funded hours. A more honest conversation about what parents pay for, what the state pays for, and how those two things fit together. Recommendations on transparency and information that raise the floor without punishing well-run providers. And, crucially, a recognition that a market cannot deliver both affordability and quality indefinitely if the funding rate does not reflect the cost of provision.

The least useful outcome would be one that treats every provider as suspect, chills investment and does nothing to fix the underlying maths. The most valuable outcome is one that balances affordability for families with the financial sustainability needed to attract investment and maintain high-quality provision. Both matter. Neither survives without the other.

The findings will be closely watched across the early years sector.

For anyone with capital, a business or lending exposure in this space, the sensible response is not to wait for Spring 2027. Review your own position now in the same terms the CMA is likely to apply, and be clear on where your model holds, and where it may come under pressure.

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If you would like to discuss what the CMA study could mean for a nursery business, a portfolio or a live transaction, please get in touch.

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This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.

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