Expected Merger Could Expand Calif. Preschool
In a sign of continued consolidation within the fragmented child-care industry, Fontana-based Bright Beginnings Preschools was expected today to merge with Mulberry Child Care Centers Inc. of Needham, Mass.
The move would combine two privately held upscale day-care operators into one of the top 20 for-profit child-care companies in the nation, with $30 million in revenue and 65 locations in five states licensed to serve more than 6,000 children.
Bright Beginnings Chief Executive Robert Orsi said the deal will provide his 11-center operation with the capital to expand, while giving Mulberry an instant foothold in the vast California market.
“Building high-quality preschools is expensive. When you’re a small company, you reach a certain plateau where it is tough to keep growing,” Orsi said. “You relinquish some control when you become part of a team, but there is much to be gained.”
The California centers--in Claremont, LaVerne, Covina, Irvine, Temecula, Loma Linda, Riverside, Rialto, San Bernardino, Perris and Fontana--will retain the Bright Beginnings moniker for now, though a name change is possible down the road. The companies said Orsi will become vice president of Mulberry and oversee development in California and other Western states.
The beefed-up company is looking to grow steadily in Southern California and other regions through acquisitions and the development of new centers, according to Clark Adams, president and chief executive of Mulberry.
He said the company plans to add 20 new facilities between San Diego and Santa Barbara during the next three to five years, catering to markets with educated, two-income families who are willing to spend a good chunk of their disposable income on enriched child care.
Adams said Mulberry is likewise positioning itself to go public within a few years, as a couple of other fast-growing child-care firms have done recently. Mulberry’s operations outside California include 34 day-care centers and 20 after-school programs in Massachusetts, New Jersey and other states.
“There is a severe shortage of high-quality child care in this country,” Adams said. “So we see a real demand for what we do.”
Industry watchers say the move is part of a wider trend toward consolidation in the $30-billion industry, which is still dominated by mom-and-pop operators, churches and nonprofit cooperatives.
The 20 largest providers account for just 5% of nationwide child-care revenue, according to a study by Wall Street Furman Selz.
Meanwhile, demand for child care continues to grow. Approximately 60% of mothers with children under 6 are in the work force today, compared with 22% in 1960, according to the Bureau of Labor Statistics. By 2000, it is expected there will be 44 million U.S. women of child-bearing age working outside the home, up from 41 million in 1990.
In January, President Clinton announced plans for the largest child-care initiative in U.S. history. If approved by Congress, his $21.7-billion mix of tax cuts and subsidies could help bridge the affordability gap for parents interested in enrolling their infants and toddlers in higher-cost, professionally managed day-care centers such as Mulberry.
“There is a lot of room for expansion among even the largest child-care providers,” said Leslie Nelkin, managing director for Furman Selz. “Even industry giant KinderCare [Learning Centers Inc.] . . . represents only a tiny fraction of the market. That suggests we’ll see further combinations.”
Wall Street definitely has taken notice of the diaper-and-drool set of late. Two fast-growing firms that went public last year--Cambridge, Mass.-based Bright Horizons Children’s Centers Inc. and CorporateFamily Solutions Inc. of Nashville--have seen their shares more than double in value since their initial public offerings.
But the Street hasn’t always been so family-friendly.
Large operators such as Montgomery, Ala.-based KinderCare; La Petite Academy Inc. of Overland Park, Kansas; Farmington Hills, Mich.-based Childtime Learning Centers Inc.; and San Rafael, Calif.-based Children’s Discovery Centers of America all struggled at various times during the 1980s and early ‘90s, leaving some investors to ponder whether bigger is really better in the child-care industry.
“This isn’t an easy business to manage,” said venture capitalist Dave Ryan, who also serves as Mulberry’s chairman. “This isn’t just another consumer service like an instant oil change, which involves one employee and an inert object. We are talking about caring for little people, which carries far greater management and professional requirements.”
Still, the 1996 purchase of KinderCare by respected investment giant Kolhberg Kravis Roberts & Co. (KKR) has led the smart money to take another look at the market, says Michael Moe of Montgomery Securities in San Francisco.
“A lot of people woke up and said, ‘Hey, maybe this isn’t such a bad business after all,’ ” Moe said. “Fact is, there is an increasingly critical need for high-quality, enriched child care in the United States.
“There is always going to be a market for the mom-and-pops. But there is also a very compelling case that larger players have learned from past mistakes and are going to do quite well.”
