What to consider when acquiring a healthcare business
The UK’s expanding and ageing population is driving increased demand for residential healthcare. This has created an opportunity for the country’s operators that are investing in existing facilities and building new ones.
We provide funding to ambitious operators that want to expand by acquiring healthcare businesses. If you’re considering this route or are in the process of identifying care businesses for sale, this article explains what to consider.
Find out more about Growth Lending’s healthcare fund on our healthcare finance homepage.
Location, location, location, and type of care
What’s your expansion strategy? While individual strategies differ, we see a number of commonalities that are worth thinking about as you start your search.
The first one that stands out is that healthcare operators tend to prefer acquisitions in their local area. That’s largely a practical consideration, as they want to be able to travel between sites easily. But it also means you can capitalise on your relationships with local authorities and suppliers.
There’s also a big question about the type of care – is your strategy to replicate an existing delivery model at a new site or do you want to diversify?
There are benefits to diversification, with the main one being that you can build on existing referral relationships. However, that has to be balanced with the difficulty of building an operational model around a new type of care.
The type of asset is an important factor because it dictates the cost of maintenance, renovation and compliance. If the facility is purpose built, you need to look into the quality and age of buildings. If it’s converted, the quality of the conversion is important.
The importance of seller motivation and affordability
The next step after you’ve established your initial search parameters is to look at individual listings.
The first question to ask is about the seller’s motivation – why have they decided to sell the business?
This has a big influence on the price and the type of opportunity. An operator may be retiring and selling a successful business that can continue to run without significant operational changes. If a large group is selling one or two sites, there’s every possibility that an underlying issue exists.
Care Quality Commission audits support this research. The assessment of quality and performance will highlight any shortcomings that need to be addressed, showing where you may be able to add value.
Finally, the way you finance the acquisition will impact what’s possible. Traditional lenders base loan amounts on your existing assets. While this is a factor in Growth Lending’s analysis, we can be more flexible to meet the needs of compelling expansion strategies.
Common finance options for buying a healthcare business
There are three main options to fund healthcare acquisitions:
- Banks: Loan amounts are based on the value of your assets, which can limit your options, and these organisations generally have less flexibility.
- Alternative lenders: Able to stretch the value of the underlying assets. However, parameters are limited to a specified loan-to-value ratio, which does not recognise the full benefit of the borrower’s earnings.
- Growth Lending: Offers a practical approach that incorporates cash flow and asset-backed lending.
You can read more about our healthcare fund, which offers finance facilities from £2m, make an enquiry or email me at adam@growthlending.com to find out more.
What Growth Lending considers when evaluating a healthcare loan
We like working with experienced operators that are looking to grow. We’re interested in your strategy and how you bring that to life, which includes talking about:
- Your targets and how you plan to achieve them
- Your management team and most important clients
- The value of the assets you own
- The goodwill and cash flow your business has
- KPIs like occupancy, bed revenue and average weekly fees, and how these compare to the market
- How your business aligns to our Environmental, Social and Governance (ESG) principles
What happens next in the funding process?
We expect to issue indicative terms if we’re going to move forward, which we can do within 48 hours.
Our finance facilities are designed to support the working capital and investment needs of healthcare businesses, offering the flexibility, speed and quantum that these organisations need to enable them to thrive.
See how we can support your acquisition by visiting our healthcare finance homepage or email me at adam@growthlending.com to discuss your situation.
