As we all know there have been turbulent times in the financial markets, which has led to some bad news for the care sector. It has contributed to fee pressure and indirectly the news stories on Southern Cross that have constantly impacted the wider market. That said, the demographics and core business model of the wider social care sector remain robust.
There are a number of operators who are at a cross roads who need to decide what they should do next. With general inflationary pressures, wage increases and general bureaucracy coupled with fees that are unlikely to rise, it is vital for operators to determine how they move forward.
In addition, many banking facilities will be due to be renegotiated in the next 12 to 18 months and operators may find that the new terms are going to be a lot less generous.
So, what are your options?
Grow the business
Options include growing organically (new geography/contracts, additional homes, further recruitment or marketing) or by acquisition. There are a number of acquisition opportunities at present given some operators are struggling with debt levels in their business. Thorough research and planning will help you ensure that the strategy is correct and that you do not simply react to opportunistic acquisitions. In addition it is important to plan for raising finance and due diligence.
Diversify
There may be natural additional areas for growth such as domiciliary care for an established elderly provider or education services for residential children's homes. However different skill sets may be required for different service lines and a diversification should be planned carefully to maximise the opportunity.
Take out some cash / refinance
Debt finance and tax rates are still low, if the exercise is structured correctly. As such the cost of raising cash in the business and realising some of the value prior to a future sale can be attractive. Your existing banking facilities may increase substantially on renewal, and it may pay to undertake a full review of banking facilities available.
Sell some or all of the business
You may wish to realise some of the value in the business and reduce personal gearing and risk. Alternatively you may wish to reduce debt levels in the business. We often see clients selling just one home or one particular business stream.
Throughout all stages of the business cycle, it is important to ensure you know what is happening in the wider marketplace to ensure you have the right structure for your plans. In addition you should be making sure the structure works for today and you are not paying more tax than necessary.
We have worked with a number of existing and new clients over the recent years, reviewing their options and then helping them implement the strategy, whether it be acquisition, organic growth, refinance or disposal. Disposal has been a particularly attractive option to many given the strong multiples and number of buyers in the sector.
If you would like to discuss the market in general or the way forward for your business, we will be delighted to have the opportunity to meet with you. Please do not hesitate in contacting John Lucas or Andrew Brookes in the Health and Care team.
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