Running a specialist care sector business in the UK—whether through the provision of residential care or supported living services – requires more than just compassion. In today’s climate, financial strategy, a strong grasp of the operational considerations relevant to these businesses, and regulatory awareness are essential for a successful sale.
In this article, Chris Jones, Corporate Finance Partner here at Bates Weston discusses key Mergers and Acquisition (M&A) considerations within the sector.
Key drivers for M&A activity in the UK Specialist Care sector
“The market for specialist care provision is continuing its rapid transformation, and understanding the landscape is essential for strategic decision-making. The move away from public sector provision coupled with improved diagnoses has resulted in increasing demand for specialist services. This includes care for adults and children with autism, learning disabilities, mental health needs or emotional and behavioural difficulties.
We are seeing strong deal activity in these fragmented markets as independent operators are being acquired by larger groups seeking scale and operational efficiency. High EBITDA multiples are common in specialist care, making it a lucrative space for both buyers and sellers.
However, the sector still faces a number of challenges:
- Workforce shortages and rising labour costs
- Immigration policy changes affecting recruitment
- Local authority funding constraints affecting profitability of care packages
- Operational pressures (maintaining quality, care delivery and compliance)
These are all factors that owners need to consider when readying their business for sale.
This is why it is crucial to work with a team of advisers who are experienced in the sector and can help owners market their business in a professional manner, targeting the logical well-funded purchasers and in so doing optimising the value achieved for the business.”
A Market Populated by Well-Funded Buyers
“The larger UK care groups operating in this market seek to grow their businesses by making selective acquisitions that provide additional specialist services and geographic expansion, the aim being to increase the value of their own business on exit. Most of the main buying groups benefit from institutional funding meaning that deals are fully funded on completion.”
Benefit of using Advisers Experienced in the Sector
“There are several benefits to using professional advisers who understand the specialist care sector, and know how to maximise value for their clients. Buyers will want to acquire high quality businesses that have sustainable revenue streams and are capable of being scaled once acquired. Other elements to consider include:
- Information Memorandum – Buyers will want to see a document that shows the financial performance of each service and how this reconciles back to the performance of the overall business. This will involve the calculation of run rate EBITDA at the time of marketing together with a forecast of completion EBITDA on which the deal value will be based.
- Care Delivery – A key area of scrutiny for the Buyer’s due diligence teams is cross referencing rotas to service user contracts to check for care under delivery and inflated profitability. In arriving at the run rate profitability in the Information Memorandum we would put together a financial model on the business based on each individual care package. This will demonstrate that financial performance is sustainable.
- Deal Negotiation – The specialist care sector benefits from a number of serial acquirers backed by private equity and infrastructure funds. Therefore, the job of the adviser is to ensure that the logical purchasers of the business are involved and that a competitive process ensues from which to drive value.
- Support through to Completion – Once deal terms are agreed with a preferred bidder we continue to support vendors throughout the due diligence process and the agreement of the share purchase agreement.
Our team of Corporate Finance advisors have extensive experience in the Specialist Care market, having advised the owners of both adults and children’s care businesses across the UK. Get in touch today to see how we can help.”
