How to Sell a Care Home Business
Planning to sell a care home or a whole group? Read this guide to discover everything you need to consider before signing on the dotted line.
There are many reasons why you may decide to sell a care home or group. Whether you’re simply making changes to your portfolio or planning to move out of the care home industry altogether, there are several factors to consider to ensure you get the best possible outcome.
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Worth almost £16billion a year, the care sector is growing to accommodate an ageing population. However, with strict regulations, high running costs and tight profit margins, not all care homes are profitable ventures. As a result, you may opt to sell a care home or your whole group in order to focus on other areas.
So, whether you’ve already found a buyer from your care home business, or you’re simply considering your options, read this full guide to ensure you are well-equipped to tackle the selling process and can make the most from the exchange.
Hire a selling agent
One of the biggest mistakes that people make when selling a business is trying to manage it all themselves. You may be an experienced business owner and have even overseen the exchange of contracts before, but how do you know you are getting the best deal? This is where your selling agent comes in.
Selling a care home requires a detailed understanding of the industry, knowledge about the market and the skills to attract the right buyer for your business. It’s not as simple as listing a home or a car on a website. Typically, a care home owner will appoint a selling agent to oversee the sale and ensure they are maximising the results for the seller.
Your selling agent isn’t just there to facilitate the sale of your care home. They work with you at each stage of the selling process, from identifying buyer types through to valuation and compliance. An experienced selling agent is also well-acquainted with the NHS and CQC regulations that might impact your sale, helping to make the selling process as efficient and profitable as possible.
At Rangewell, we work with business owners looking to sell their care homes. As finance brokers, we also have a team of expert selling agents who work with sellers to find the right buyer and get the best deal for their circumstances. From vetting and fielding buyers through to identifying risks and overseeing the paperwork, our selling agents are with you every step of the way.
So, if you are selling a care home, part of your group or your entire business then get in touch with Rangewell today. We’ll discuss your options and how to maximise your selling opportunities, so you can be sure that you are selling to the right buyer on the best possible terms.
Even if you appoint a selling agent, it’s important to have an understanding of the selling process and what to expect. So, keep reading to find out more about how a typical sale of a care home works and what to expect from this process.
Identify buyer types
One of the most important stages of selling a care home is finding the right buyer. Before you start to speak with individual buyers, it’s worth taking the time to understand the typical types of buyer and what to expect.
Established corporate groups: The UK care industry is dominated by large corporate groups, so it’s likely that you will receive some buying interest from one or several of these organisations. A corporate care home group will have its own Mergers and Acquisitions department (M&A) M&A department that identifies buying and selling opportunities that fall in line with their wider business goals.
Private individuals: You may encounter a private individual looking to purchase their first care home. It may also be that your management team is keen to explore a Management Buyout (MBO), or a colleague within your business has the assets to explore purchasing the care home. All of these people are considered private individuals, rather than part of a larger corporate group like the above.
Small groups/intermediaries: An emerging buyer type is the small care group, perhaps the buyer has a handful of care homes in the local community and is looking to grow their portfolio. The group is a business, but may not have an entire corporate operation dedicated to the purchase, and you will likely get to know the owner direct. This group is a combination of the two, and largely depends on the unique circumstances of the buyer, so selling to a small group will require a tailored approach.
While these are the typical buyer types you will encounter, no two will operate exactly the same. If you have sold to a corporate group in the past, you might find that another group of a similar size has a completely different approach. This is because all businesses have different budgets and goals, and your care home will provide a different benefit to each buyer. While a corporation may acquire your care home purely for the assets and property, a small group may be looking to continue your hard work while retaining your staff. For some sellers, the price is the most important consideration. While others may feel strongly about how the care home, and its staff, will be used by the buyer. Questions surrounding the buyer’s intentions, whether they intend to keep staff and how they will be funding the acquisition may all be of interest to you when filtering potential buyers.
In fact, as part of the selling arrangement, you may choose to ask your buyer to agree to certain terms around the retention of your staff, for example. However, it’s worth noting that many corporate buyers will have their own established processes and, therefore, be likely to bring their own teams. And, whatever your requirements or requests, you must remember that any prerequisites will likely come with a cost - be it financial or otherwise.
Valuing your care home
The care home market is relatively active, with corporate groups making regular group buy-outs or individual business purchases to further grow their portfolios. Equally, there are several reasons why a group may choose to dispose of a care home within their organisation. For example, the care home may no longer be profitable, or you may be struggling to maintain high occupancy rates necessary to succeed. Whatever your reason for selling, it’s vital that you get an accurate valuation to ensure a smooth selling process.
So, with that in mind, here are some factors to consider when assessing the value of your care home:
Freehold or leasehold property?
The type of property matters significantly when it comes to valuing your care home. A freehold property means you likely have exclusive occupancy rights and the potential to extend the building(s) into other areas of the land owned.
Whereas a leasehold property usually has a time limit for occupancy, and any businesses residing in that space have limited rights to the integral structure of the building. However, the specifics of which will depend on the leasehold agreement between the care home owner and the building owner.
A freehold care home is typically worth significantly more than a leasehold.
As a care home business owner, you’ll know the importance of understanding your capacity and what that means for the business as a whole. For most care homes, a high occupancy rate is vital to ensure profitability - if your rooms are empty, then you aren’t making any money from them. The difference in outgoings between 70 and 90% occupancy will be negligible, while the difference in your earnings is significant. It’s in this gap where the money is made.
So, the capacity - and current occupancy - of your care home will be of interest to any potential buyer. If low occupancy is part of the reason why you are selling, then the buyer may have their own strategy for filling the rooms, such as investment in the facilities and a marketing boost. But, if you have struggled to maintain occupancy rates for several years, then they will see this as a way of knocking down the price and getting a good deal for them. Your selling agent will help you to identify these factors early on, so you will know to expect queries surrounding capacity and occupancy at the negotiation stage.
Care homes are full of expensive equipment and this can impact the value of your business. Whether the equipment is owned or rented is one thing that buyers will want to know. They will also enquire about the age of the equipment and whether it is regularly maintained. Remember, your buyer is looking at every aspect of the business to identify savings and opportunities for profit. Even if the buyer is a large corporate group with their own equipment, the value of the existing infrastructure will make a difference to what they want to pay for the business.
As with selling any business, the location is critical to the value of your care home. For example, is your property located in an area with an ageing population, like Bournemouth, Blackpool or Southend? Your selling agent may inform you that the location of your business is favourable to potential buyers for this reason, or perhaps because it is accessible via public transport and boasts a large car park. Make sure to work with your selling agent to determine these beneficial features and be sure to highlight them when valuing and marketing your property.
We touched on this when discussing occupancy rates - potential buyers will certainly want to know about the business performance, including financial accounts. Of course, you might be selling because the business is underperforming, and the buyer will need to know this and it may impact the value if you are in debt.
While harder to value than equipment, your care home team is an important asset to your business. If you have a care home manager that takes pride in their job and always gets results, then make sure this is clear to prospective buyers - especially if part of their terms is to ensure employment for staff. The valuer might not place a figure on the team, but the day-to-day operations of the care home are significantly impacted by how good your staff is, so they will see this to be a benefit when valuing the business.
Asset or share sale
There are two different types of sales, depending on the structure of your company and how you intend to sell it. An asset sale is the disposal of specific assets, whereas a share sale is when you sell your majority shares in the business. A share sale is often a buyer’s preference as it means they acquire the whole business, and from your point of view, it creates a defined break between you and any responsibilities or liabilities that come with the business.
As always, your selling agent will advise on the best sale approach for your business and help you to facilitate the transfer of ownership to the new owner.
For many business owners selling their operations, this can be the most difficult step. Thankfully, a selling agent will have considerable experience of due diligence and will be able to help with this part of the process.
Due diligence is key to the overarching legal process that takes place when you sell a business. While it is typically driven by the buyer’s lawyer, you will benefit from having an understanding of how it works and what may occur during this stage. The buyer’s legal team will carry out an extensive check of the business, covering all aspects of the transaction. In order to best cooperate with the buyer, and ensure minimal disruption to the selling process, be sure to have access to the following information:
- Financial accounts - a history of the business’s financial performance and the existence of any unpaid debt
- Property details - freehold or lease, any land restrictions or planning applications
- Contracts and trading agreements - information about any existing relationships between yourself and suppliers
- Assets - equipment and other assets that may impact the value of the care home
- Intellectual property and litigation - any history of IP issues, such as logo theft and any other past or current litigation
- Employees and pensions - your current staff, the team structure, their contracts and salaries.
This is not an exhaustive list of everything the buyer will consider when it comes to due diligence. If you are unsure as to whether you need to supply a certain piece of information, consult with your selling agent.
Now you are in a position to enter a pre-contract negotiation phase with your buyer. Typically, this involves meeting the buyer with your selling agent to discuss the sale, answer any questions they may have, and clarify what they get for their investment.
The buyer will likely lead this meeting, as it’s their responsibility to work with their legal team to identify any concerns or risks and ask questions accordingly. All of your research carried out in the due diligence stage above will be useful in this meeting or series of meetings.
If your buyer is seeking care home finance to acquire your care home, then this is their opportunity to gather all of the information they need to secure the funding. Following the pre-contract phase, the buyer’s solicitor will draft a Head of Terms document that outlines the conclusion of the meeting and confirms the buyer’s intention to acquire the care home. This document is vital and the sales process cannot proceed without it.
Negotiation and sales agreement
Once you have a Head of Terms document, you can begin the negotiation and sales process. While you have an idea about the value of your care home business, the buyer will also have a formal valuation of the property - typically led by their lender. As with Due Diligence, this is another stage led by the buyer, but you will benefit greatly from understanding the process, why certain requests are made and how to comply to ensure the sale is made efficiently.
Following the valuation and the finalisation of the sale, a Sales Purchase Agreement (SPA) is drafted, outlining the terms and conditions of the sale, including any information regarding the retention of staff and any other important information, brought up after the negotiations.
As the seller, you will want to pay particular attention to the inclusion of any warranties in the sale agreement. A warranty is a written statement, such as “I have no existing litigation against my business.” This provides legal guarantee to the buyer about any such areas in question, and the breaking of a warranty may result in legal action, so it’s vital to pay particular attention to this stage of the process.
Employees and TUPE
As an employer, you may already be aware of TUPE (The Transfer Of Undertakings Regulations). TUPE is in place to protect existing employees, so it’s critical that you discuss any contracts, salaries, existing working hours and arrangements with the buyer so they are able to maintain these obligations once they take over the business.
There may be a warrant in the sales agreement that will allow you to take legal action against the buyer should they breach TUPE and any agreements in place regarding the welfare of your staff.
Unless your business is closed, you can continue to operate the care home up until the final sale, so make sure to inform the buyer of any changes with regards to employee status.
The completion of the sale comes upon the final signing of the sales agreement and any other required documentation. If your buyer is securing finance from a lender, then this is the stage of final approval and they will be able to green-light the transfer of funds. The lender will only transfer the funds once they are happy with the sales agreement, due diligence, valuations and any other agreements.
As the care home industry is regulated, your buyer must have a CQC application grant before they can take over running the practice. Then, your legal team will exchange contracts with theirs and any final signatures will be taken.
While we have covered a brief overview of the care home sales process, this guide is far from exhaustive and no agreements are the same. If you are considering a transfer of ownership of your care home, or care home group, then you should work closely with an experienced selling agent. They will not only ensure you are getting the best deal, but also help to navigate any and all issues that may arise along the way.
Sell your care home with Rangewell
Whether you are selling just one care home or looking to pass on the entire group to fund a new venture or retirement, then your journey starts here. Meet your selling agent and start the selling process with Rangewell - get in touch to speak to our expert team today.