If you are a well-established business (most likely in the healthcare sector), you may be considering buying a care home – either an individual property or potentially even a whole franchise.
Perhaps you already own businesses of this kind or perhaps you are relatively new to the sector but you’re keen to branch out and expand your portfolio while providing long-term care for the vulnerable. Either way, if investing in the care home sector is a business move that you’re seriously considering, we’ve put together this helpful guide to get you started.
Along the way, we’ll exploring both the upsides and downsides of acquiring a care home, as well as detailing special considerations to keep in mind that apply to running a care home business in the UK. Finally, we’ll explain the acquisition process step-by-step, so you’ll know just what to expect.
First, though, let’s begin by taking a quick look at the different types of care home business you can consider acquiring and what it would mean to purchase a franchise.
A closer look at care home options
Before we explore the process of acquiring a care home in detail, it’s important to understand the types of care home business that are available as the differences between them are significant.
Care homes
As the name suggests, a residential care home is a 24-hour live-in facility for the elderly and vulnerable. These homes provide both accommodation and round-the-clock care which includes assistance with feeding, washing and dressing. Care homes also tend to offer some recreational and social activities for their residents to keep them mentally and emotionally stimulated and engaged.
Nursing homes
Nursing homes are like care homes but provide an additional level of medical assistance and are required to always have qualified nurses available. Nursing homes typically care for patients with more complex needs, or who need frequent medication administered.
Dual-registered homes
As the name suggests, dual-registered care homes provide both personal care and more complex medical assistance. This allows them to look after a broader spectrum of individuals.
Specialist homes
Some medical conditions typically found in the elderly and vulnerable can be more complex than others, such as dementia or substance dependence. As a result, there are specialist facilities designed to cater to these residents and provide them with the specific care they need to remain safe and as healthy as possible.
The pros and cons of acquiring a care facility
Because of the specialised nature of a care home facility, the pros and cons are also unsurprisingly unique – and quite significant. As a result, it’s important to do your homework and dedicate a lot of time to weighing up the benefits and drawbacks of this kind of investment, even if you already have years of experience within the sector.
The advantages of care home acquisition
Perhaps the most intriguing benefit of investing in a care home facility is the potential profits you can accrue. Provided the facility is run well, with a reputation for providing a high calibre of care and meeting CQC standards, there is the possibility of generating a significant profit margin.
However, you need to factor in the various costs of running a care home effectively and bear in mind that you may not always be able to maintain the numbers of residents required to generate the required revenue – nor the required number of staff. Workforce shortages are a well-known issue in the care home sector.
Of course, if you are worried about possible problems down the line, you can always embark on an asset sale, whereby you avoid taking on any liabilities the business may have. This could be an avenue to strongly consider if you don’t have a lot of experience in the ownership and management of a care facility.
Besides the potential for substantial profits, another major benefit of investing in this kind of business is the ability you will have to make a positive impact on the lives of those in your care. As such, this form of investment can be deeply rewarding from an emotional standpoint.
The downsides of care home acquisition
Arguably the biggest drawback to investing in a care facility is the fact that you must abide by the necessarily stringent requirements laid down by the CQC, designed to ensure the highest standards of safety and care. This requires a great deal of planning, preparation, rigorous attention to detail, and consistent focus throughout the year.
You will also need to be prepared for surprise CQC inspections, which take place twice a year and can result in financial penalties or even removal from the care home register if you fail to uphold appropriate standards.
Consequently, ensuring your facility meets the required standards will become a top priority – not only to help you pass the inspections but, most crucially, to ensure a safe, positive, and nurturing environment for the vulnerable people who reside there.
Special considerations
When it comes to acquiring a care home business, there are a few unique considerations you’ll need to keep in mind.
First and foremost, there are the CQC requirements, as we’ve already mentioned. You will need to familiarise yourself with the CQC registration details of the home you’re considering buying, not to mention researching the Commission’s assessment framework. It can’t be stressed enough how vital it is to adhere to the CQC’s regulations and ensure that the home is always prepared for an inspection.
Speaking of the home’s CQC registration details, you should consider the fact that the home’s current rating at the time of your acquisition can have a bearing on the purchase price. For instance, if the home did not fare well on its last inspection – and particularly if it has any forthcoming investigations – then the price may need to be lowered by the seller before you sign any contracts.
You will also need to focus on vital elements such as insurance – as any claims made against the care home could be potentially very costly and problematic – and your new employees’ contracts and qualifications. While care homes regularly take on inexperienced workers and train them up, there must also always be a suitable number of experienced, qualified and competent staff on hand to ensure residents receive the required levels of care.
The M&A process explained
Now you have a clearer picture of the finer details, pros and cons of acquiring a care home business, it’s time to move on to the acquisition process itself. Here’s how it works!
Stage One: Finding the right target
Of course, the first step of any acquisition strategy is to seek out potential targets and then gradually narrow them down until you’ve found the most suitable investment opportunity.
This can take a particularly long time when your targets are care homes because there are so many vital factors to consider – such as the specific location, the elderly demographic and income levels of the local populace, the number of beds in the home, its CQC rating, and the current number of occupants.
To help you weed out the less suitable targets and find the prospect that would best suit your requirements, it might be worth your while to hire the services of a business broker. Not only can they take over the search and liaise with potential targets, but they can also oversee the entire acquisition process from start to finish on your behalf, saving you a great deal of time, effort and stress.
Stage Two: Getting an accurate valuation
Once you have a target in mind, your next priority will be to ask for their valuation – or to have one carried out if the seller doesn’t have a recent figure. This may even be done by your proposed lender, to provide them with an accurate sum.
As we’ve already mentioned, care home valuations can be complex, as they must consider several crucial factors. These include the location and its crime rate, the number of beds and current occupancy rate, the CQC rating, and the state of the property, as well as whether it is a leasehold or a freehold.
The valuation will also consider the care home’s current staff, such as the rate of employee turnover and their qualifications – with specialist team members obviously having the potential to increase the home’s value.
Once you have an accurate valuation, you can then proceed to the next stage of the acquisition process – negotiations.
Stage Three: Negotiating the deal terms
If you are happy with the valuation and you believe your prospective target could be a great investment opportunity, then it’s time to commence negotiations with the seller.
This step of the acquisition journey involves hammering out various vital aspects of a potential deal, ranging from the proposed timeline of the acquisition through to discussing indemnities and liabilities, and how to manage the integration process so there is as little impact as possible on staff and care home residents.
You won’t be signing any legally binding contracts at this stage, but you will be laying the groundwork for the deal, so this phase can be crucial to the success – or lack thereof – of your acquisition.
Stage Four: Due diligence
This part of the M&A process is often where deals are made or broken before a contract is even signed. During the due diligence stage, the seller will provide you with all the vital documentation and information related to their care home facility’s operations.
This spans everything from tax returns and profit and loss statements through to staff contracts, supplier contracts, CQC registration details, and so much more.
Gaining access to this crucial information will help you to gain an accurate picture of how the home is run and its current state. It will also enable you to make an informed decision about whether this particular business would make a sound acquisition prospect – or not!
The Final Stage – Deal Completion!
Once the due diligence has finally been completed – hopefully, with satisfactory results – it’s time to get those contracts completed and signed!
This is where your legal team will step in to make sure everything is correct and above board and that all legal requirements are met. Speaking of which, because of the nature of your acquisition, it’s recommended that you hire a legal team specialising in the healthcare sector, as they will have a thorough and nuanced understanding of the business you’re buying and all the considerations you should take into account.
Of course, once the final contracts have been signed, the acquisition process isn’t over, as you will need to handle the integration phase. However, now that your signature is on the dotted line, you are officially the owner of a care home business, and it’s to be hoped that your new investment will provide you with a profitable and fulfilling experience for a long time to come.
How to have a stress-free acquisition
Before we wrap things up, it’s important to note that, while acquiring a care home business can be a complex process, there are steps you can take to streamline and simplify the transaction.
One step is, as already noted, to hire a legal team specialising in the healthcare sector.
Another step is to hire a business broker to oversee the entire process for you, from start to finish. As we mentioned above, not only can a business broker help you find prospective targets to buy that suit your acquisition profile, but they can manage every stage of the process – right up to deal completion.
Along the way, an experienced and trusted business broker can offer invaluable advice and assistance, including mediating between you and the care home seller and assisting with negotiations and due diligence. With their help and hard work, you can gain more time and energy to focus on deal completion – and running your own existing business, of course.
Here at Harris Acquire, we have years of experience in guiding both buyers and sellers from that initial contact with prospective targets all the way to a successfully signed contract. So, if you’re keen to embark on your care home acquisition while avoiding unnecessary stress and hassle, why not give our friendly and professional team a call on 01926 757100 and find out how we can help?
