Selling your care business? Here’s what you need to know

What’s the outlook for care businesses?

Whilst some privately-owned care businesses and their management teams have been considering leaving the sector since before the pandemic, deal activity has slowed significantly over the past 18 months due to high inflation and interest rates.

Recent hikes in utility and food costs, coupled with the increase in the National Minimum Wage (NMW), are intensifying the financial pressures that many care businesses are facing. The current situation has been made worse by the failure of LAs and integrated care boards (ICBs) to track inflation when commissioning care services. The funding shortfall means many care businesses are struggling to meet their operating costs and pay staff appropriately.

Securing funding for the first time is becoming more challenging too. More councils are issuing section 114 notices which means they have less money to spend, a problem that is disproportionately impacting smaller care service providers who lack the in-house skills to negotiate the funds they require.

Increased public scrutiny of care services and more stringent regulatory pressures introduced as part of the CQC’s new single assessment framework are compounding the challenging outlook in the sector.

Successful transactions require preparation

Despite the challenges facing care businesses, there are plenty of opportunities when it comes to selling up. For example, cash-rich private equity investors recognise that there could be opportunities to support organisations to scale – whether that’s through acquisitions, organic growth or property development. Ongoing demand for care services means investor interest in the UK healthcare market is likely to continue.

To secure third-party investment, providers must make early preparations. Transactions and due diligence are taking longer at the moment, so it’s important that sellers have realistic expectations. To help get the ball rolling, care businesses looking to sell should practice good housekeeping when it comes to their financial, legal and commercial affairs. They should also aim to keep buyers, investors and lenders informed of the latest information, and ensure the transaction stays on course.

On top of these steps, sellers should have a post-transaction succession plan in place and a pre-agreed management team to oversee the transition.

Key takeaways

Amid mounting costs and regulatory pressures, care businesses should seek legal advice from a sector specialist who can help them identify a suitable investor and streamline the transaction process. Some key advice points follow:

• Plan goals for the transaction early on. What do you hope to achieve?
• Resolve any risk factors that could impact investor confidence.
• Seek specialist legal advice and ensure robust due diligence is carried out.
• Practice good housekeeping in all financial, legal and commercial matters and ensure stakeholders are kept up-to-date and fully informed. 
• Establish a post-transaction succession plan and hire senior-level support where needed.

For more information, contact Laura Jordan.

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