Private care homes across the Midlands are facing a “perfect storm” of regulatory and economic pressures and must address quality and finance issues if they are to survive, according to sector specialists.
Speaking at an event focused on the care home industry, banks and intermediaries were told there was a “flight to quality” in the sector which could mean that some care home operators will buckle under the pressure.
David Bennett, a restructuring specialist at Grant Thornton, said “New legislation, in the form of The Health and Social Care Act 2008, which comes into force on 1 October, has meant that all English care home operators have had to re-register with the Care Quality Commission (CQC) in order to ensure they can stay in business.
“For those at the lower end of the CQC rating system, especially those with financial performance issues or those that are highly leveraged, the pressure has become insurmountable.”
Guest speaker Bryan Higgins, Grant Thornton’s national care sector manager, added: “Public sector cuts are leading to a reduction in the number of local authority-funded care home places, so operators are not only having to raise their game in terms of operational quality and compliance, but are also having to cope with reducing occupancy levels with the inevitable negative effect on income streams.
“Both operators and their funders need to address several key factors as a matter of urgency if they haven’t already.
“Management quality and effectiveness is absolute top priority, swiftly followed by cost control.
“Proactive business management is key and use of sector experts with bespoke diagnostic tools to explore the inter-relationship between care operational and financial issues can often make the difference with turnaround success. Inevitably there will be businesses that seek help too late which always results in a far heavier failure rate.” Despite the current pressures, Grant Thornton believes that certain aspects of the care sector are still very attractive to investors, particularly private equity houses, with the sector continually ranking in the top five industries to do business with in Grant Thornton’s Private Equity Barometer survey.
Richard Lunn, director at Christie & Co and a fellow speaker at the event, said: “It is essential that investors take a long-term view, but there are still significant opportunities out there. Private equity seeks new and innovative products and services which can be expanded across a wider market; the care sector provides the ideas, people and platforms for this growth, but the focus is definitely on quality.
“Values reflect not only the current performance of a care business but also the future viability, with a premium applying to those of high quality with sustainable earnings.”