The early learning and childcare M&A market has had a bruising eighteen months.

The Desktop spoke to Doug Lilley, a broker active in the childcare M&A market. Here is what he is seeing, and what owners need to understand before they make a move.

Valuations that once landed at six times profit are now coming in at four times, and buyers are walking away even at that. Corporate groups that were once the most active acquirers have pulled back almost entirely, spooked by compliance exposure and bogged down managing what they already own. The ACCC intervention to block the Affinity acquisition in late 2024, a $6.5 million leasehold deal that fell over on competition grounds sent a signal through the market that has not been forgotten.

Since then, deal flow has been cautious. Buyers are circling. Few are committing.

G8 Education peaked at 21.8x in 2022. It now sits around 9.9x. That is a 55 percent decline in three years.

In the private market, multiples are landing around four times profit. Buyers are walking away even at that.

The sector has repriced. The number you are likely to be offered today is not the number from three years ago.

According to Doug, valuations are still coming in at around four times profit for well-prepared early learning services The gap between what sellers expect and what buyers will pay has narrowed, but it has not closed.

What is separating the strong services from the rest comes down to three things: occupancy, staffing costs and lease structure. A service with solid occupancy, a clean P&L and a manageable lease can still transact. A service carrying a lease at seven or eight thousand dollars per place per year, written in a landlord's market and assuming the service runs at eighty to ninety percent capacity is a different conversation entirely.

In some cases, Doug says, the lease has made the centre unsellable. Not unattractive. Unsellable.

A lot of operators are still carrying leases from a very different market. Buyers are looking at them hard, and what they are seeing is risk they cannot price.

The fundamental issue, according to Doug, is that many of these leases were written on the assumption of full occupancy. When a centre is running at sixty or seventy percent, the rent per occupied place blows out in ways the original deal never contemplated.

The lease did not change. The occupancy did. The risk is the gap between them.

Buyers understand this. They are not walking away from leases categorically, but they need to see a credible path through them. Without that, the conversation stalls.

If your lease is the problem:

The headwinds hitting the sector are not coming from one direction.

Doug points to occupancy dropping at the start of 2026 and not fully recovering. The reasons are structural as much as cyclical.

1.481 – Australia's total fertility rate in 2024. The lowest on record. Down from 1.795 a decade ago. Source: Australian Bureau of Statistics, Births Australia 2024

These are not trends that reverse quickly. For owners assessing occupancy risk, the question is no longer just whether the local market is temporarily soft. It is whether the structural conditions that filled rooms three years ago still exist.

Regulation has added another layer. Compliance costs have risen, spot checks have intensified, and the standard being applied has tightened. Breaches that might once have been managed internally are now becoming market events.

Corporate groups, which were once the most reliable source of acquisition appetite, are largely sitting out. They are divesting in some cases, consolidating in others, and in almost all cases focused inward. The buyers who are active are private operators, family offices and smaller groups willing to lean in, but they are leaning in carefully, and at four times, they are walking away if the numbers do not hold.

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If a sale is on the horizon in the next twelve to eighteen months, Doug is clear: the preparation needs to start now.

Doug's broader advice is to watch the May budget before making any firm decisions. There are no green shoots in the market right now. Operators who move too early, without the fundamentals in order, are unlikely to get the outcome they are hoping for.

The market will move again. When it does, the services that have done the work will be the ones that transact well.

If this landed with you, forward it to someone who should be reading it. Or drop me a line directly at [email protected]. I'll be back with more next week.

Olivia McDonnell
Publisher, The Desktop