Britain’s biggest provider of residential and nursing care homes for the elderly is on sale for £1bn as owners seek to take advantage of increasing investor appetite for social care assets; according to today’s Financial Times (paywall)
HC-One, which has about 14,000 staff working in 369 registered care homes, was founded in 2011 from the collapse of Southern Cross — then Britain’s biggest care home operator.
Any deal would be the largest since Terra Firma’s debt-fuelled acquisition of Four Seasons Healthcare for £825m in 2012.
Four Seasons confirmed it was being taken over by its principal bondholder H/2 Capital Partners on Friday, with Terra Firma, the private equity group run by Guy Hands, estimated to have made a loss of at least £450m on his investment.
Gleacher Shacklock, the corporate finance boutique, has been appointed to act on the sale, according to people familiar with the plans.
HC-One have refused to comment on the market speculation.
HC-One was formed by Chai Patel. Its owners include a consortium of investors including Formation Capital, Safanad, the US real estate investment trust HCP, StepStone Real Estate Partners and Court Cavendish, a management company run by Mr Patel.
The group has grown quickly by buying homes from Bupa, Helen McCardle Care, and Meridian Healthcare in the past few years, racking up at least £500m debt in the process.
Mr Patel and Gleacher Shacklock also declined to comment.
Appetite for real estate-backed healthcare assets has increased since infrastructure funds starting buying into the sector, driven by a lower cost of capital than traditional buyers and demand for elderly care as a result of the ageing demographic.
AMP Capital and Antin have made significant forays into the UK care market. Private equity investors such as KKR, as well as US real estate investment trusts and Asian insurers, are also expected to be interested in HC-One, said people close to the sale.
Buyout company Bridgepoint is also selling Care UK, which owns 114 care homes with almost 8,000 beds as well as other NHS services.
Julian Evans, head of healthcare and hotels at Knight Frank, said buyers could use the purchase as an opportunity to build scale in the elderly care market in the UK and Europe.
Others will have little interest in managing the homes but could buy them to lease back to operators, he added. Care homes have been closing as a result of the government’s cuts to local authority fees, the rise in the minimum wage and tighter immigration rules, which have pushed up the cost of hiring nurses. But the closures have also pushed occupancy rates higher at the remaining homes, raising sales prices for quality property with high numbers of self-paying residents.
Data from LaingBuisson, a research firm specialising in health and social care, show available care home places have been falling since 2015 and currently stand at about 465,000.
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Alison Willoughby Specialist Business Appraiser at DC Care commented; “The headlines surrounding this transaction will throw up some big numbers and in light of what seems like an endless spate of corporate governance scandals, I’m concerned that the general public will view care providers as high rollers, pleading famine whilst enjoying the feast.
“Meanwhile, the squeezing of local authorities’ budgets continues, with the social care precept raising most funds in areas with least need. Can you really blame local authorities for perhaps not rushing to move those who are sat in a hospital bed out into a social care setting, leaving the cost of care to the NHS?
She continued; “I’d like to see the focus shift, with a concerted effort by all parties to develop closer working ties. Whilst there is a lot of rhetoric, with everyone agreeing that funding needs to improve, no concrete, national roll-out shows signs of making an appearance. There are still too many firm lines between state and private care, which means that efficiencies that could be brought into play simply are not. We must learn to blur the lines between state and private care more effectively; perhaps with more flexible and portable budgets. This gives the care industry the best chance of seeing out this particular storm.
“With an appropriate funding mechanism in place, businesses are sustainable and innovation in care can be embraced. New services can be established, providing jobs for the wider community and care providers and their funders can feel confident in the future of the industry, rather than hovering on a precipice, as so many are.
“Until that happens, we will see the market contract and choice removed. Our NHS does an amazing job; it is a shame our care providers are judged more harshly.”