By Chris Rowlands, managing director of Amberglobe Care and Blacks Business Brokers (www.blacksbrokers.com)
The care sector has been undergoing change for a number of years, and many residential care facilities have, of course, suffered terribly dur- ing the Covid-19 pandemic. This will have had financial as well as tragic human repercussions for some businesses.
Taking a long-term view, the Government has undertaken to take the funding of social care in hand, with the suggestion of an additional tax levied on, or compulsory insurance paid by, the over-40s to pay for it. What emerges from this remains to be seen, but for the Government not to act after making such a clear undertaking would involve a major loss of political face.
The dynamics of an ageing population, coupled with the prospect of finally establishing a sound system of funding for social care, should make care businesses even more attractive to long-term investors. Private equity investment has played a significant role in the sector for some years, and this trend is likely to continue.
We cannot predict the course of the current recession but at the moment there is no indication of a major credit crunch of the kind expe- rienced during the financial crisis at the end of the last decade. Trade buyers and individuals with sound credentials and business plans should still be able to secure funding to complete the acquisition of solid care businesses.
Whether you are considering buying or selling a care home over the months or years ahead, there are a number of dos and don’ts that will help you achieve the outcome you want.
TIPS FOR SELLERS
1. Identify your priorities and ideal buyers. What do you want to achieve from selling your business? Is it all about maximising the price or do you also want to protect staff’s jobs as far as possible?
If you sell to larger operator, they might have a central admin team that would put some of your office staff out of a job. If, on the other hand, you are the manager as well as the proprietor then you will need a buyer who either meets the Care Quality Commission’s requirements in terms of professional qualifications or has the resources to employ a manager.
If you are planning a few years in advance of selling then now might be the time to start giving your deputy more responsibility and estab- lishing a succession plan.
2. Careless talk costs deals. Many care home sales are completed on a confidential basis, for obvious reasons. At some stage you will probably need to engage your management team in the process but in most cases you should share information strictly on a “need-to-know” basis.
3. Get your house in order. The period between agreeing a deal and completing it will be used by your buyer to conduct due diligence on your business. Any unwelcome surprises will be used as reasons to chip away at the agreed price.
You should, therefore, ensure that not only are your financial accounts impeccable but also that your contracts with staff and resi- dents are up-to-date and watertight. Staff qualifications should also meet the latest CQC standards.
If you have any outstanding complaints or disputes then these should also be settled as far as possible.
4. Don’t forget you’re selling a property. Perform a thorough inspec- tion of your premises. Buyers will carry out a survey, and it’s better that they don’t find any problems that you haven’t already told them about.
A lick of paint will also help. Like selling a house, we all know it shouldn’t be a deal breaker but people do judge by appearances.
5. Get an accurate, professional valuation. Every business is different and has a range of characteristics that will affect its value. These include profitability and condition of the property, and also location. Land values vary greatly around the country, so if you are selling the freehold this will be a major factor in the price you achieve.
6. Turn that frown upside down. Could your care home’s reputation be better? Have you been missing your revenue targets lately? Have you struggled with staff retention? Don’t try to hide this – provided your price is fair, a buyer will want there to be room for them to improve on your performance, whether that’s through improved PR, marketing or HR practices.
TIPS FOR BUYERS
1. Identify the right type of seller for you. If you want to manage the business yourself, or have someone in mind that you want to install, this will be easier if your seller also doubles as the manager. Existing staff will usually be protected by TUPE regulations, although you can make genuine redundancies with the advice of a good employment lawyer.
Conversely, if you are buying the business as an investor and have lit- tle or no experience in the care sector then you will need either to buy a business with an existing manager in place, or to employ someone suit- ably qualified to manage the business for you.
2. Work out your preferred business model. Do you want a home that primarily deals with publicly funded residents, which is usually lower-margin but provides a regular stream of business? Or would you prefer to focus on self-funders, which can be more lucrative but usually demands a higher standard of accommodation and is less predictable in terms of numbers of residents?
3. Dig deep in your due diligence. The degree of regulation govern- ing the care sector means that, as well as satisfying yourself the busi- ness has sound financial performance and fit-for-purpose contracts with staff and residents (get an accountant and a lawyer to check these), you also need to be sure that staff have the correct qualifications and that there are no outstanding complaints for which you would be liable. Also, pay particular attention to your survey of the building – having to replace a roof or heating system six months into your new venture could blow a gaping hole in your business plan.
4. Remember, it’s a business. If the previous owner was struggling financially then you will need a genuine strategy to turn things around. If you are relying on third party funders then they will want to see this but, if you are laying out your own money, you should be just as thorough- going.
All the things you want to do to provide great care, and need to do from a regulatory perspective, come at a price. You need to know what that price is, and how you are going both to cover this and to make the profit you want on top.