Buying a care home in administration
There seems to be an endless stream of care homes in administration hitting the market for sale. Whilst buying a home in this situation may seem daunting, as long as you do your homework and have the right advice, it can be easier in many ways, says David Burrows of David Stephen Partners
People are surprised that a care home could go belly up, even in the current climate. At its most basic, fees come in and expenses go out – and the difference between the two is your profit. How can it go wrong?
Well, a lot of the homes we have seen coming to market in administration have got into difficulties for reasons that have nothing to do with the home itself. For example, we are dealing with a case at the moment where the operators overstretched themselves with other projects, while in another recent case it was unpaid taxes that sank the business.
Whatever the reason, there are certainly good opportunities to be had. Savills are selling an 88-registered care home in Yorkshire for £2.5m – which in a better market and out of administration would be worth significantly more. Since you are dealing with a receiver, it is in their interest to keep the home running efficiently to secure the best sale price. They will be easier to deal with than many vendors and will try to make the process as straightforward as possible.
When buying a care home that is in administration, here are a few important points to consider:
• Establish the reason why
This is important if you are raising commercial finance on the purchase. Many lenders will be reassured if they know that the problems were nothing to do with the care home itself. If the problems are connected with the home, an action plan can be created to solve the issues - although you’ll undoubtedly find it harder to secure funding, unless you are an established operator with significant cash-flow.
• Surround yourself with professional firms
When buying a care home from administrators, it is not the time to cut costs on professional fees. Bear in mind the cost-cutting that may have occurred before the receivers were called in. There may be many pitfalls that await you. It is therefore a good time to get an experienced, commercial solicitor involved – ideally one who specialises in the healthcare sector. The slight increase in fees over that of the small high street practice will save you much time and money in the long run. In fact this is sound advice for all healthcare purchases – but more so for homes in administration.
• Act fast
This is probably most important of all. Again it is good advice for any purchase, but especially the case if the home is in administration. In most cases, CQC will have imposed a bed block, so as residents die they will not be replaced and the goodwill of the business is only heading in one direction – downwards. If you are trying to obtain commercial funding from a bank, the goodwill element will be critical to their calculations of debt servicing and so it is important to drive the deal through as quickly as possible.
As an example, we are currently acting for the buyer of a care home registered for 28 that is in administration.We were introduced to the deal 10 days ago and have already met with banks and just await the formal offer of funding. When choosing the lender that we wanted to do the deal, the speed at which the bank can move was as important to us and our client as the usual issues such as margin, loan to value etc.
Of course, there are other factors to consider but these are the main ones in my view.
If you are considering a business that is in administration and would like to discuss the process more, we would be delighted to assist you. Please contact us on 0208 362 9700 or by email to david@dspartners.co.uk.
David Stephen Partners are specialist brokers to the health and care sectors. David Burrows is a partner and heads their team. You can find out more at http://www.dspartners.co.uk