Much is changing in the care sector, limits on the number of visitors in care homes have been eased and the Government has u-turned on mandatory vaccinations. Whilst much of this is welcomed by providers it will no doubt create more confusion. For a detailed look at the position on ‘mandatory vaccinations’ please see my colleague Matt Wort’s blog on the subject.
What these changes do show, is that although the pandemic is not over, there is a renewed optimism that some sense of normality, albeit within the bounds of restrictions, can be seen to be returning. How then does this affect the commercial outcomes for the sector and mergers and acquisitions (M&A) activity in the next 12 months?
Before looking at the possibilities for 2022 it is useful to look at how the care sector market has performed in the last 12 months to see what the baseline is.
For care homes, 2021 occupancy levels were still below pre-pandemic levels. In Knight Frank’s ‘2021 UK Care Home Trading Performance’ publication they state occupancy levels were at 79.4% as opposed to a pre-pandemic level of 87.9%. However, the same publication notes “…whilst occupancy is still some way from the pre-pandemic levels in the high eighties, operators are now generally reporting a slow recovery and with a backlog of potential residents we are confident that this upward trend will continue”.
The rise in occupancy is a positive sign for the care home market and is likely to increase the appetite for greater transactional activity. The wider care market is also showing positive signs. In a blog by Liam Bailey at Knight Frank he reports (in relation to seniors housing), “…investors spent £1.4 billion in the UK seniors housing market during 2021, beating last year’s record by 2.2%. The number of deals agreed climbed by 15% year-on-year, reflecting the fact that 2021 was a far more active market for investment than in 2020…”.
The landscape for investors in care is also changing. Traditionally the sector has been dominated by UK based investors. 2020 and 2021 have seen changes with European investors taking an ever-increasing interest in the sector. For instance, Aedifica from Belgian has invested more in the UK market with the recent purchase of Layland Walker to manage its UK assets.
Positive trends are also apparent in other parts of the sector. In the most recent edition of Care Markets, it’s reported that Eden Futures continue to have a high level of enquiries and increase the size of their offering but that the continuing challenges around staff recruitment is slowing down the expansion. It’s also reported by Care Markets that Promedica24 is creating 2,000 jobs nationwide. The article goes on to report on the comments of Grzegorz Wrzosek the recruitment director for Promedica24. The article goes on to report on the comments of Grzegorz Wrzosek the recruitment director for Promedica24. In relation to achieving the growth ambitions of the company in the UK he states “…to achieve this, over recent months, we have increased our investment in the UK side of the company by over 20%…”.
Whilst there appears to be a general recovery in the sector some it is clear that investors are favouring particular areas. Adult specialist care is one of those sectors. Care Markets reports “…adult specialist care remains a ‘highly attractive’ area for investors…Due to the high barriers for entry a ‘big pool’ of investors is continuing to look at the market, with a ‘good level’ of M&A over the past 12 months…”. The article also reports on the comments of Peter Jennings from Grant Thornton who took part in a LaingBuisson webinar. Peter states, “there are a lot of good news stories from an investor side of things…”. The article goes on to state, “…he [Peter Jennings] predicts several bigger deals will go through in the next 12-18 months…”.
Although funding and workforce issues will continue to affect the sector and the threat of Covid-19 is always present, the outlook for 2022 is still a positive one. Investors continue to be attracted to the area and there is an increasing trend towards consolidation driven by technology and the economies of scale that greater size brings. We, therefore, predict that we will see increasing levels of M&A in the sector in 2022 and that investors will continue to see social care a safe haven for investing in.
For more information
If you would like to discuss any of the above please contact Adrian Leonard.
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