The Competition and Markets Authority’s (“CMA”) announcement on 1 July 2026 that it is launching a market study into early years education and childcare services in England is significant not only for providers, but also for investors across the regulated care and education sectors.

What is the CMA’s childcare market study?

The CMA has stated that it will examine access to childcare, affordability, funding, the role of regulation and the impact of different ownership structures on outcomes for families and providers.

For some of us this announcement may feel familiar. It follows the CMA’s high profile market study in 2021 into children’s social care, which identified concerns regarding placement sufficiency, market concentration, profitability and financial resilience among some large providers. Those findings continue to influence government policy now.

Why the childcare sector is under increased scrutiny

This latest review focuses on early years childcare rather than children’s social care, however it is of relevance to investors across the wider children’s social care sector.

In reality, it is another indication that the regulators across adult and children’s social care together with the Government are increasingly interested in how care and education markets work, who owns providers, whether public money is being utilised effectively and whether existing regulatory frameworks are supporting or hindering sustainable growth.

The regulatory landscape is becoming more complex

The CMA’s announcement specifically highlights that its review will examine barriers to entry and expansion, affordability pressures, the role of public funding and the impact of different ownership models. It will also consider the role of local authorities and regulatory levers in shaping the market.

For investors, these themes are particularly important.

Historically, regulatory due diligence in transactions has often focused on relatively straightforward questions, for example:

Does the target company hold the correct registrations?
Has the Ofsted taken enforcement action?
Are inspection ratings acceptable?
Are there any ongoing investigations?

Those questions of course remain critical. However, the risk profile of care and education businesses is becoming increasingly sophisticated.

A target may have “good” inspection ratings but still face significant commercial risks arising from recruitment problems, registration anomalies, geographical expansion challenges across the country or weaknesses in their governance frameworks.

Equally, a provider’s growth model may appear attractive commercially whilst carrying hidden regulatory risks that only emerge after acquisition (or, more helpfully, during diligence!).

What this means for investors

As regulators increasingly focus on market sustainability and provider resilience, investors need to understand not merely whether a business is compliant today, but whether its operating model remains resilient in a regulatory environment that continues to evolve at pace, particularly with the changing shape of how services are being required to operate today.

Ownership structures are under increasing public scrutiny

In our view, one of the most interesting aspects of the CMA’s announcement is its intention to examine how different provider types and ownership structures affect costs and consumer outcomes.

We don’t anticipate that this should be interpreted as hostility towards private investment. Private equity plays a key role in expanding good quality capacity across regulated care and education markets where demand often exceeds supply.

However, investors should be cognisant that the political and regulatory environment continues to focus heavily on questions such as financial sustainability and profit levels. The court of public opinion demands transparency and value for taxpayer funds now more than it ever has, particularly with the budgetary pressures across all government departments in today’s climate.

We saw many of these themes in the CMA’s children’s social care market study, where concerns were raised regarding market concentration and financial resilience within parts of the sector.

The practical implication is that investors increasingly need acquisition strategies backed by robust regulatory narratives. Understanding governance structures, group oversight arrangements and regulatory relationships becomes as important (or in some ways, more important) as understanding EBITDA performance.

Why regulatory due diligence is more important than ever

Against this backdrop, specialist regulatory due diligence has never been more important.

In our experience, some of the most significant value impacting risks identified during transactions are not traditional legal risks but regulatory operational risks which sit beneath the surface of a business.

Examples commonly include:

Registration structures that no longer align with the operation of a business.
Homes operating beyond the scope of their registration
Governance systems that appear robust on paper but are poor in practice.
Workforce models becoming more vulnerable.

These risks may not immediately appear in financial due diligence exercises, yet they can have real significant impact post completion.

Increasingly, sophisticated investors are seeking regulatory due diligence not simply to identify compliance failures, but to understand future strategic risk.

Beyond Ofsted inspection ratings

A common misconception in transactions is that inspection ratings provide a complete picture of regulatory risk.

Inspection outcomes remain important, but they represent only one element of the wider regulatory landscape.

As Ofsted itself continues to develop its inspection methodologies providers are operating in an environment where regulatory expectations continue to evolve.

The same principle applies across other regulated sectors. An inspection report provides a snapshot in time, it does not necessarily show how governance functions in practice or future regulatory business risk.

This is particularly relevant for acquisitive platforms seeking to scale rapidly through multiple acquisitions.

The opportunity for well-governed providers

Whilst increased scrutiny often attracts negative commentary, there is another side to the story.

Providers with strong governance frameworks are likely to be well placed to benefit from greater scrutiny. Investors increasingly seek assets capable of demonstrating stronger leadership and good quality governance structures.

Businesses that can evidence these characteristics are often more attractive acquisition targets and may be better positioned to navigate the future.

Providers and funds looking to sell at this time are taking advantage of vendor due diligence to position themselves in the best possible way for exit.

Looking ahead

The CMA’s childcare market study may ultimately result in recommendations relating to funding and market operation. The final outcome remains to be seen. What is already clear, however, is that the direction of travel is towards greater scrutiny of how regulated care and education markets operate and how providers are governed.

For investors, lenders and larger provider groups, the message is straightforward: regulatory considerations can no longer be viewed as a narrow compliance exercise or a “nice to have”.

They are increasingly central to investment decision making and long term growth.

As specialist healthcare and social care regulatory lawyers, we are seeing a growing recognition that effective regulatory due diligence is not simply about identifying problems. It is about understanding whether a business is capable of delivering sustainable growth within an increasingly complex regulatory environment.

In a market where regulatory expectations continue to evolve, that insight has never been more valuable.

Get In Touch

Speak to our healthcare and social care team about regulatory due diligence for childcare, education and care sector transactions.

FAQs

What is the CMA’s childcare market study?

The CMA has launched a market study into early years education and childcare services in England. The study will examine issues including affordability, accessibility, funding, regulation and the impact of different ownership structures on families and providers.

Why is the CMA investigating the childcare sector?

The CMA is seeking to understand whether the childcare market is working effectively for families, providers and public bodies. The study will consider barriers to access, the role of public funding and factors that affect the availability and quality of childcare services.

What is a CMA market study?

A CMA market study is an in-depth review of how a particular market operates. The CMA can make recommendations to government, encourage voluntary changes within a sector or, in some cases, consider further regulatory or competition-related action.

How could the CMA childcare market study affect childcare providers?

The study could lead to recommendations affecting funding arrangements, regulatory frameworks, market oversight and operational requirements. Providers may face increased scrutiny of governance, resilience and service delivery models.

Will the CMA childcare market study affect investors?

Yes. Investors may see greater focus on provider governance, financial sustainability, business resilience and ownership structures. These factors are becoming increasingly important during acquisitions, investment decisions and exit planning.