Longform

IT'S A JUNGLE GYM OUT THERE

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If a deal-maker had to construct the perfect pitch to sell a potential investor, private child care might be it. The concept is warm and fuzzy. And although anyone who works in the field and still makes only pennies more than minimum wage may find it difficult to believe, it has become big business.

Early last year, for instance, La Petite Academy, the country's second-largest child-care provider, was purchased for $170 million. The year before, the company enjoyed revenues of about one-quarter of a billion dollars. Experts calculate the industry generates $20 billion annually.

The juicy numbers play out locally as well. In 1986 Colorado supported 688 child-care centers, according to the state's Office of Child Care Services. By the beginning of 1994 that number had exploded to just under 1,000. Six hundred of those are in the metropolitan area alone.

Even with the industry's recent spectacular growth, Jeff Aarons, a stock analyst who follows child care for Delaware Bay Co. of New York, predicts that the business will expand even more. As evidence, he points to the increasing number of children needing care while their parents work. "Simply from a demographics standpoint," he says, "the numbers are there."

The future of the business most likely lies in far-flung chains--the KinderCares, La Petites, Children's Worlds and other future McDonald's of the child-care world. The reason is that, while national and regional chains already seem to be everywhere, the vast majority of child care still takes place either in private residences (3,700 licensed homes in the Denver metro area), or in individual mom-and-pop centers operating on a shoestring.

Many of those centers are caught between ever-increasing government restrictions and a business that has never enjoyed hefty profit margins. More and more often, owners are looking to bail. "Every year there are more government regulations; every year things get more expensive," says Mary Jane Murdoch, who operates four centers, including one at the University of Colorado Health Sciences Center. "The temptation is there to just say, `No more.'"

That leaves a wide opening for companies looking to expand by snapping up small centers. "The future," summarizes Aarons, "lies in big companies. Standardized care is the way to go."

Despite the seemingly unbeatable appeal of the raw numbers, the business is not a financial gimme. The government pays only a fraction of the actual cost of child care when families on welfare place children in private facilities. Tuition increases to offset those losses can quickly scare off parents. A recent industry association survey found that 75 percent of centers nationwide either lose money or break even.

"You almost have to have a charity mentality to run these centers," says Harold Arnold, who until recently owned part of the Children's Enrichment chain of centers in the Denver area. "If we had all the money I made in child care, it wouldn't buy us two or three lunches."

Don Mack is the first to admit that he has certain business skills. "I'm an entrepreneurial kind of guy," he says. "I have a knack for selling and raising money. I've been in a lot of different businesses." For example, he adds, "I've got a truckload of adjustable beds I'm selling right now."

He says he developed the art of the deal as early as his high school days in Nyack, a suburb of New York City. "Even back then I was buying and selling cars," Mack says. "I would wholesale cars out of New York City. I would make 500, 1,000 bucks a car. When I was sixteen years old, I had five cars less than a year old."

He accompanied a friend to Colorado the day after his high school graduation in 1975. Over the next several years he dabbled in everything from restaurants to roofing to antiques. (Several lawsuits filed in Arapahoe County District Court suggest that loans he took out during this period were not always paid back on time.)

In 1988, after one of his restaurants floundered, he recalls, "I thought, I really need to get into something more stable. So I got my [securities] broker's license." After only a year of working for a couple of local brokerages, however, he broke off on his own because "I got tired of raising money for other people's deals."

In late 1989 Mack was hired as a consultant by two Colorado Springs child-care centers looking to expand into a regional business and then go national. "They were looking at KinderCare and La Petite and seeing big things," he recalls.

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Eric Dexheimer
Contact: Eric Dexheimer