Care Business Acquisition - What Buyers Need to Know

A care business acquisition can provide an opportunity to expand an existing care group, enter a new market or acquire an established healthcare operation with experienced staff, existing clients and operational infrastructure.

Unlike a conventional business purchase, acquiring a care business requires careful consideration of regulation, management, contracts, finances and property. The buyer needs to understand not only what the business is worth, but also how the acquisition will affect its ability to continue providing regulated care.

In England, the Care Quality Commission regulates relevant health and adult social care activities. The legal entity carrying on the regulated activity is responsible for registration with CQC, rather than simply the property where the service operates.

What Is a Care Business Acquisition?

A care business acquisition involves purchasing all or part of an established care operation.

Depending on the target, this could include:

• A domiciliary care agency

• A residential care business

• A nursing home operator

• A supported living provider

• A specialist care company

• A homecare business

• A healthcare services company

• A group of care businesses

• An operating company with care properties

The buyer may acquire the shares of the company, purchase selected business assets or structure the transaction around both the operating business and property.

These different approaches can have very different regulatory and commercial consequences.

Why Acquire an Established Care Business?

An established care business can provide infrastructure that would take significant time to develop independently.

Depending on the company, an acquisition may include:

• Existing clients

• Experienced management

• Trained care staff

• Established procedures

• Existing contracts

• Referral relationships

• Operational systems

• Trading history

• Care premises

• Supplier relationships

• Brand and goodwill

However, buyers should not automatically assume that every element will remain unchanged after completion.

Staff may leave, contracts can contain restrictions on ownership changes and regulatory requirements may change depending on the structure of the transaction.

The acquisition therefore needs to be assessed as a complete operating business rather than simply valued on turnover.

CQC Registration and Care Business Acquisitions

CQC registration should be reviewed early in the acquisition process.

CQC's current guidance states that where a buyer is purchasing or taking over a service or location operated by an existing registered provider, CQC needs to be informed. Relevant applications from the existing provider, incoming provider and managers must also be coordinated in the correct order.

This makes the transaction structure particularly important.

A buyer should establish:

• The current registered provider

• The legal entity operating the business

• The regulated activities being provided

• The registered locations

• The registered managers

• Whether the existing company will remain in place

• Whether a new legal entity will operate the business

• What CQC applications or notifications will be required

CQC states that carrying on a regulated activity without registration is an offence.

Share Purchase Versus Asset Purchase

A major consideration in any care business acquisition is whether the buyer is purchasing the company or selected assets.

Share purchase

A share purchase involves acquiring the company that operates the care business.

The existing legal entity may continue as the registered provider. However, the buyer still needs to conduct extensive due diligence because existing liabilities, contracts, employees and regulatory history remain within the company.

Asset purchase

An asset purchase can involve acquiring selected assets such as:

• Goodwill

• Equipment

• Contracts

• Business systems

• Client relationships

• Property interests

• Intellectual property

If the buyer operates the acquired business through a different legal entity, the CQC registration position needs to be assessed carefully because the legal entity carrying on the regulated activity must be registered.

Legal and regulatory advisers should therefore be involved before the transaction structure is finalised.

What Should Buyers Check During Due Diligence?

A comprehensive care business acquisition should cover regulatory, financial, operational and property matters.

CQC registration and inspection history

Review:

• CQC registration details

• Regulated activities

• Registered locations

• Registered managers

• Inspection reports

• Enforcement history

• Registration conditions

• Outstanding compliance matters

• Previous regulatory correspondence

The buyer should examine each location rather than relying solely on the company's overall reputation.

If the business operates several care homes or care services, each location should be reviewed individually.

Financial Due Diligence

The financial performance of the business should be independently assessed.

Important areas include:

• Annual accounts

• Management accounts

• Revenue

• Operating profit

• Payroll

• Agency staffing costs

• Property costs

• Insurance

• Utilities

• Repairs and maintenance

• Tax liabilities

• Existing debt

• Cash flow

• Working capital

• Capital expenditure

The buyer should also identify where the company's income comes from.

This may include private clients, local authority placements, NHS-funded services or other commissioning arrangements.

A company with strong turnover may still have limited profitability if staffing, property and operating costs are substantial.

Client and Contract Review

Existing clients and contracts can be significant components of a care business acquisition.

The buyer should review:

• Number of clients

• Service types

• Average fees

• Funding sources

• Local authority contracts

• Private-pay arrangements

• Contract lengths

• Renewal provisions

• Termination rights

• Payment terms

• Change-of-control provisions

• Outstanding disputes

It is important to establish whether major contracts can continue following completion.

For example, if a substantial proportion of income comes from a small number of commissioning arrangements, the buyer should understand the contractual position before assigning a value to that revenue.

Staff and Management Due Diligence

Care businesses are highly dependent on their management and workforce.

The buyer should assess:

• Registered managers

• Senior management

• Care workers

• Recruitment procedures

• Staff turnover

• Training

• DBS checks

• Employment contracts

• Agency worker usage

• Absence levels

• Management succession

CQC requires organisations carrying on regulated activities to have registered managers for each regulated activity in relevant circumstances.

If the existing management team is expected to remain after the acquisition, the buyer should establish the terms of their continued employment and responsibilities.

Where a location is transferred and the same registered manager will continue managing the same regulated activities at the same locations, CQC has a specific process allowing that manager to apply to continue their registration under the new provider.

Care Business Acquisition With Property

Some acquisitions include the property from which the care business operates.

This creates two separate areas of value.

The business may derive value from:

• Earnings

• Clients

• Contracts

• Staff

• Management

• Systems

• Goodwill

• Trading history

The property may derive value from:

• Location

• Size

• Condition

• Planning position

• Lease structure

• Alternative use

• Development potential

Keeping these components separate during due diligence can help buyers understand what they are actually paying for.

For example, an investor acquiring a care business in London may be purchasing an established operation together with a freehold care home. The value of the operating business and the value of the property should be considered independently before being combined in the overall acquisition analysis.

Leasehold Care Businesses

Not every care business owns its premises.

A care provider may operate from leased:

• Care homes

• Offices

• Supported living properties

• Community facilities

• Specialist accommodation

For leasehold premises, review:

• Remaining lease term

• Rent

• Rent reviews

• Repair obligations

• Assignment rights

• Change-of-control provisions

• Landlord consent

• Insurance

• Service charges

• Break clauses

• Renewal rights

A business with strong operating performance can still face problems if its property lease is close to expiry or contains restrictive provisions.

Planning and Property Due Diligence

Where property forms part of the acquisition, planning and building condition should be reviewed carefully.

The buyer should establish:

• Existing planning use

• Planning permissions

• Planning conditions

• Building regulations history

• Fire safety arrangements

• Electrical systems

• Heating

• Accessibility

• Security

• Maintenance requirements

• Potential refurbishment needs

The intended care service should also be compared with the property's lawful use and physical suitability.

A buyer considering a care property in West London, for example, may need to assess both the commercial performance of the existing operator and the building's long-term suitability for the intended care model.

Acquiring a Multi-Site Care Business

Larger care business acquisitions may involve multiple locations.

A buyer should create a detailed schedule covering each property and service.

This can include:

• Property address

• Freehold or leasehold status

• Number of beds or service capacity

• Current occupancy

• CQC registration

• Registered manager

• Inspection history

• Revenue

• Staffing

• Lease expiry

• Major repairs

• Refurbishment requirements

CQC's registration process specifically requires information about locations when a provider is taking over existing services.

Reviewing locations individually can reveal differences between otherwise similar parts of the business.

Refurbishment and Post-Acquisition Investment

A newly acquired care business may require capital investment after completion.

Potential works include:

• Bedroom refurbishment

• Bathroom upgrades

• Kitchen improvements

• Fire safety works

• Electrical upgrades

• Heating improvements

• Accessibility improvements

• External repairs

• Security upgrades

• General maintenance

Major works should be assessed before the acquisition price is finalised where possible.

Fraser Bond can assist with property assessments, refurbishment planning, contractor coordination, building works and ongoing property management.

How Fraser Bond Can Help With a Care Business Acquisition

Fraser Bond can support investors, care groups and business owners involved in specialist care acquisitions across London and the wider UK.

For buyers considering a care business acquisition, Fraser Bond can help assess the property component of the transaction, review freehold and leasehold considerations, coordinate property due diligence and identify refurbishment or building requirements.

For sellers, Fraser Bond can help present the business and associated property opportunity clearly to prospective buyers.

Where appropriate, Fraser Bond can also support the property following completion through refurbishment, construction, maintenance, facilities support and property management.

Legal, accounting, tax and regulatory specialists should be involved where appropriate, particularly where the transaction involves a change in legal entity or CQC registration.

Care Business Acquisition Checklist

Before proceeding with an acquisition, buyers should establish:

• What exactly is being acquired?

• Is it a share purchase or asset purchase?

• Which legal entity operates the business?

• Which regulated activities are registered?

• Which locations are registered?

• What is the CQC inspection history?

• Are there outstanding regulatory matters?

• Who are the registered managers?

• Will key management remain?

• What contracts generate revenue?

• Are there change-of-control provisions?

• What are the staffing costs?

• What liabilities will transfer?

• Are the premises freehold or leasehold?

• What planning and building issues exist?

• What refurbishment is required?

• What CQC steps are required before completion?

Final Thoughts

A care business acquisition involves considerably more than buying a company with existing revenue.

The buyer is potentially acquiring a combination of regulated activities, clients, staff, management, contracts, operational systems and property. Each element should be reviewed before completion.

CQC's current guidance makes clear that the legal entity carrying on a regulated activity is responsible for registration, while acquisitions involving existing services or locations require coordination between the incoming provider, existing provider, managers and CQC.

For investors and care operators considering acquisitions in London and across the UK, Fraser Bond can provide specialist property support throughout acquisition, refurbishment, construction, maintenance and ongoing property management.