Fieldfisher publishes a fourth paper in its Perspective series, this time on investing in the UK Care Home sector.
The UK care home market is in a state of flux. Increased demand for services continues to outstrip the supply of available funding. In meeting the future healthcare needs of an ageing UK population, alternative healthcare providers from the private sector have an important role to play, particularly in the provision of long-term care of the elderly in residential homes. The rise of “extra care” facilities, typically in a village community format and requiring leasehold purchase by residents, is also informing both development and investment decisions.
Like any market, residential care homes are stratified – from low end, local authority funded institutions to high end, luxury private care homes. Estimated annualised investment returns average around 8%, much healthier than comparable returns elsewhere, and that they are somewhat greater than that at the premium end.
This paper highlights four key areas for investors to consider:
- Corporate activity;
- Asset backed transactions;
- Funding acquisition and growth; and
Philip Abbott, head of Financial Institutions at Fieldfisher and co-author of the paper comments:
"Investment in the sector requires a sophisticated approach in dealing with the multiple moving parts affecting a care home business, and a developed understanding of the drivers and dynamics in finance, property and regulation is essential. As is a commitment to view investments over a long term period."
Kayleigh Hartigan - European director, Healthcare Advisory at Marwood Group. said:
“The care home market will continue to grow in response to changing demographics and the burden of disease. However, the introduction of the living wage and pressure on Local Authority reimbursement will mean that most of this growth will be seen in the private sector market."
Aidan Roche, managing director of Signature Senior Lifestyle, added:
“The US investors are now running out of quality assets to acquire (with only a few upper mid-market players waiting to be acquired) and are looking to back good quality operators in the development and operation of new care homes in the upper-end of the market.”
Sarah Ellson, head of the Public Regulatory Group at Fieldfisher, said:
"Responding to high profile failures in the provision of safe care, the sector has become subject to higher standards of regulation and more vigilant enforcement. From an investment viewpoint, strong regulation should not therefore be seen as a deterrent, but as a benefit."
Fieldfisher's Healthcare Group advises on all aspects of investment in the sector as it responds to change, having acted for investors, lenders, operators and regulators. Our cross practice healthcare transactions team has produced this paper, drawing on our understanding of market dynamics and our experience in dealing with every piece of the jigsaw, to enable a care home business to work effectively for all stakeholders.
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