The care home sector faces a unique mix of opportunity and challenge; this will drive M&A activity as consolidation continues across the sector. In this blog, we consider the key factors on both sides.
Deal drivers
Demographics and demand - The underlying fundamentals are strong for the sector as the UK’s aging population continues to drive demand for care home services. As the need for elderly care, particularly specialised services like dementia care, increases, investors are attracted to the sector’s long-term growth potential.
Private and public interest - Private investors remain active in the UK care home sector, viewing it as a stable investment with opportunities for consolidation and value creation. Equally, public authorities recognise the need to meet the demand and renew an ageing stock of properties. Private investors are likely to continue targeting mid-sized and smaller operators, with a focus on scaling up operations, improving efficiencies leading to enhanced profitability and valuations.
Sectoral fragmentation - The sector remains fragmented with many small, independent operators. Larger care home groups are expected to pursue acquisitions to consolidate the market, achieve economies of scale and enhance their market presence. This trend is likely to accelerate as operators seek to mitigate rising costs and regulatory pressures.
Challenges
Income model - The reliance on public funding, which remains constrained particularly for care homes that primarily serve publicly funded residents, affects the financial viability of certain acquisition targets. This is a key consideration for buyers, especially those looking to optimise profitability, achieving economies of scale is key.
Regulation - Increasing regulatory scrutiny and the need to meet higher quality standards are pushing smaller, financially weaker operators to consider selling or merging. Larger, more compliant operators are well-positioned to acquire these businesses and integrate them into their portfolios.
Staffing - Persistent workforce challenges, including staff shortages and rising labour costs, remain a significant risk for the sector. Acquirers may be wary of taking on businesses where these issues are acute, or they may use these challenges as leverage to negotiate lower prices.
The next step
If you have any enquiries regarding the above, please contact Robert Magee on r.magee@uhy-uk.com or your usual UHY adviser.
