Selling a care home
Updated: 2nd August 2016
If you’re looking to sell your care home, you could be in luck. There has never been more interest in the industry.
With the UK’s ageing population creating rising demand for care home services, and pressure on the government to increase spending surely to affect change at some point, investors are eyeing care homes as smart acquisitions and this has created something of a seller’s market.
That said, the sale of any business is a serious proposition with many potential pitfalls and is a process which shouldn’t be rushed - especially if you want to secure the best price and take home the cash without paying too much tax.
Who is looking to buy?
Care homes are hot property right now. The Office of National Statistics says that the number of over 65s will have grown by more than 40% within the next 20 years, for example. That’s attracting a variety of buyers.
There’s entrepreneurs already operating within the industry that are looking to increase their portfolio. Your care home may be an attractive proposition if they want to expand their footprint into your geographical region, or maybe they’re a competitor and want to add your specialisms or capacity.
Outside investors have also been turning their attentions to care homes in recent years. During the recession, few risks were being taken, but now that the economy is back on the up, private equity funds have cash to invest, interest rates are low and banks are are encouraging lending - meaning there’s an increase in activity in the mergers and acquisitions market.
What makes for an attractive care home?
There may be plenty of buyers for care homes, but it still pays to put together and market the most attractive proposition. Remember that a potential new owner will have a very different from wish list from a potential customer.
For example, any business that changes hands will first go through a due diligence process to allow the buyer to fully understand what they’re getting for their money.
That means making audited financial records for recent years readily available, as well as ensuring any leases and licenses are up to date and there are no outstanding legal matters or pending court cases.
A new owner may well need to acquire their own CQC and Disclosure and Barring Service checks, but having these all up to date and scored well will prove that yours is a business in good shape that won’t give the new owner any nasty surprises.
The exact value of your business will be defined by a number of factors. As a guideline, the most common calculation is to use a multiple of current EBITDA. A poorly performing care home, or one that requires investment, will command a multiplier no higher than 5, whereas a stellar example can attain a multiplier of 10 or more.
Valuing a business is a complex matter, and it’s particularly difficult to take an objective view from within, so speak with an experienced broker who will help calculate a fair price.
How do I sell my business?
Whatever your reason for selling, disposing of a care home business can be a lengthy process, expect it to take at least six months.
Begin by plotting your personal goals from the sale, and working with your advisor to develop a plan that will help you reach those objectives, command the best price, and walk away the lowest possible tax liability.
Then it’s time to begin drawing together paperwork ready for the due diligence process and to begin marketing your care home to potential buyers. Through a broker, care homes can be listed ‘blind’, which means the specifications are made available but not your company name. This is useful if you’re worried about how the uncertainty of a pending sale could impact on your trade.
Once your marketing has attracted buyers and you’ve approached potentially interested parties, it’s time to allow them to ask questions, negotiate a deal and settle on a price. This can be laborious, but is where an advisor can really be worth their fee. Having an expert on your side to shoulder the burden allows you to carry on with your existing daily duties, while they employ their specialist experience and expertise to negotiate the best terms.
Your involvement may not be entirely over even once the sale is concluded. Your buyer may be interested in keeping you on in some capacity to help the business through its transitional period. But even if you make a clean exit, many investors will ask you to sign a warranty to ensure that the business is as you described it. Anything that turns out to be misleading or short of what you promised can lead to a date in court defending yourself against a claim - something not to be taken lightly!
Ultimately, the smartest way to sell any business is to work with specialists throughout the process. Calling on financial, legal and marketing expertise is your best chance of a problem-free transaction in which you attain the best price, minimise your tax bill and achieve all of your sale objectives. Contact BTG Advisory for specialist advice and a free consultation to find out how we can help you reach your goals.
Emma qualified as a Chartered Accountant in 2002. Since then, she has specialised in corporate finance, joining BTG-McInnes in July 2006. She has extensive experience in advising the SME market on fundraising, re-financing, acquisitions and disposals, across a broad range of industries.