How To Make Yourself An Attractive Proposition To Investors

By Pinesh Mehta, investor at BGF (www.bgf.co.uk)

The care sector has been at the forefront in the fight against the coronavirus pandemic. For 18 months it has faced extraordinary challenges that have stress tested the business, both financially and operationally, while placing considerable pressure on key workers and service users under their care.

COVID-19 has undoubtedly forced many providers to re- evaluate their proposition, highlighting the need to invest in a service that has proved vital during the course of 2020. While some may view it as an opportunity to expand and accelerate future growth plans, others will view the pandemic as a tipping point in the company’s lifecycle, deciding now is the time to exit the business.

Whatever the motivation, the importance of investment capital in realising those opportunities is clear. So, in a mar- ketplace that is worth around £16.5 billion a year and caters for the needs of over 400,000 service users , how can you make yourself an attractive proposition to investors, whether that’s gearing up for growth, or an exit?

CONSISTENTLY GOOD CARE

If a business provides a consistently good quality of care – and, crucially, it maintains that quality as it expands – everything else follows. This is often measured by care quality user ratings from external inspectors – such as the Care Quality Commission – as well as internal data, including a serious incidents log. No matter how profitable, investors won’t invest in a care business if it doesn’t provide a high enough standard of care.

HAPPY, MOTIVATED STAFF

Retaining staff is a formidable challenge in an industry where roughly three in ten care workers leave their jobs each year. In the wake of the coronavirus pandemic, many workers are suffering from burnout, competition from other employers is high, and Brexit has made it harder to recruit from the European Union. Successful companies offer apprenticeship schemes, career progression and incremental pay rises to ensure hard-working care staff are rewarded.

CLIENTS VALUE THE SERVICE

The need for care is rising due to an ageing population and the impact of the pandemic. Yet the quality of care across the industry is mixed and there is a good deal of regional variation in terms of supply and demand. To identify excellent businesses with a reliable pipeline of future clients, investors look for high occupancy rates, as well as using average weekly fees as a benchmark.

A GROWTH-FOCUSED TEAM

Investors want to back ambitious businesses with exciting growth plans, but the management team must have the skills needed to turn ambitions into reality. Investment firms look for individuals with a track record of acquiring, developing and integrating new sites into the business. They also pay close attention to how the core estate has performed over time, as this is a good indicator of how future sites will perform.

REGIONAL CLUSTERING

Operations at a care business can swiftly become unmanageable if the business is spread over too wide an area. The key is a growth plan focused on geographica clusters; that way, regional managers can oversee operations at several sites without having to travel hundreds of miles. Clustering is easier to achieve if the business pursues a blended strategy – building up new sites from scratch, as well as acquiring existing ones.

ABILITY TO ACHIEVE SCALE

Inevitably there will be consolidation in the care industry, in which roughly three-quarters of care homes are run by single-site operators, according to EY-Parthenon. Acquiring sites is the quickest way to grow, whereas developing new sites can provide a bigger boost to the overall value of the business, but this takes longer – on average, it takes two to three years for a new site to reach maturity. If done well, more scale equals a higher enterprise multiple and a more valuable business.

LOOKING AHEAD

High acuity services is a sector that has significant investment potential in the current marketplace – particularly those providers who care for adults with learning difficulties in an area where demand continues to outstrip supply, especially for operators that provide a high quality of care. As well as offering a potential return, backing these types of businesses is clearly a good thing from a society perspective.

Pinesh Mehta is an investor at BGF – the UK and Ireland’s most active capital growth investor. The company has invested in 28 businesses in the healthcare sector in recent years, totalling £162m of investment. These include Springfield Healthcare, Dolphin Homes, as well as The Good Care Group.

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