How to find and evaluate potential healthcare acquisitions

Are you planning to expand your healthcare business? The UK is facing increased demand for residential care, assisted living, specialist education and nursery care, creating investment opportunities for successful operators.

Growth Lending works with ambitious healthcare businesses, which need capital. This article sets out the steps we recommend taking when you’re trying to find and assess healthcare businesses that are for sale.

Find out more about Growth Lending’s healthcare fund, which provides £2m to £10m healthcare finance facilities, on our healthcare finance homepage.

Developing your acquisition plan

The first step is to be clear about the type of asset you’re looking for. There are four key factors to consider:

• Location:
  Operators typically look for acquisitions in their local area, enabling them to manage sites more easily and benefit from existing relationships with local authorities and suppliers.
• Type of care:
  It’s important to decide whether you want to replicate your current care delivery model or diversify. Developing a new type of care offers referral opportunities but adds operational complexity.
• Purpose built or converted:
  The type of asset – whether purpose built or a conversion – determines your ongoing costs. Factors such as the quality, age and the standard of conversion impact maintenance and compliance costs.
• Affordability:
  The seller’s motivation, the business’s performance and your finance options all will affect the size of potential acquisitions and the opportunities to add value.

For more information on What to consider when acquiring a healthcare business, Growth Lending’s Regional Head, Adam Brinn, wrote a detailed article that is worth reading when you’re developing your strategy.

Regional demand for healthcare facilities

While the demand for care homes is increasing across the UK, there are regional factors that impact opportunities.

Development activity is currently focused on London and Southern England, with more than half of new care homes expected to be built there in the next three years, according to Savills. This is partly driven by the desire for larger and private-pay facilities.

The concentration of wealth makes London an important area, but we know there are opportunities across the country. Our national footprint, with offices in London, Bristol and Manchester, allows us to work more closely with healthcare operators throughout the UK and to understand the individual nuances across different regions.

Each office has seen different opportunities:

• London: Is experiencing high levels of demand and investment, particularly for the acquisition of purpose-built care homes.
• Bristol: Also has high levels of demand and we have worked with lots of family-run businesses that struggle to access the funding they need from traditional lenders.
• Manchester: Substantial economic growth in the region means there is a big opportunity and we have recently funded a deal for the acquisition of a supported living unit.

Once you’ve defined your search location and criteria, it’s time to start looking for potential healthcare acquisitions.

Finding healthcare businesses for sale

There are a number of business listing websites, such as BusinessForSale.com, which are easy to find on Google and advertise opportunities. Finding results that match your criteria takes time, but it’s an easy way to start your research.

The most effective way to identify potential acquisitions is to work with valuation agents and advisors. For example, Christie & Co and Knight Frank both have specialist healthcare teams that can support you through the process.

Should you work with an adviser?

It’s important to consider whether to engage an adviser. They specialise in acquisitions in the sector and can help you with finding listings, valuations and advising on the deals. Although they obviously come at a cost.

The team at Growth Lending cannot give you guidance on which particular adviser to work with. However, we’re happy to provide a list of potential people to contact. It’s common for healthcare operators to speak to us about financing while beginning an engagement with an adviser.

Refining your shortlist of potential healthcare acquisitions

Have you started drawing up a shortlist? These five key questions will help refine your thinking when it comes to funding options.

• How did the facility fare in its latest Care Quality Commission, or the relevant regulatory body, audit?
  Ratings form a key part of the due diligence the lender will carry out.
• What do the historic valuation reports of the assets say?
  The underlying value plays an important role in the amount you will be able to borrow.
• What fees does the operator charge, what’s the occupancy rate, and what are the opportunities to improve these key performance indicators?
  This will help identify opportunities to improve financial performance.
• Who’s the registered manager? How will you retain and recruit staff?
  The registered manager is critical because they drive the business’s reputation and are responsible for recruiting staff.
• What are the opportunities to expand, for example by building an extension, or to make savings?
  These will create opportunities to increase revenue and profitability.

Finding funding for healthcare acquisitions

Our finance facilities support the working capital and investment needs of healthcare businesses, offering the flexibility, speed and quantum that these organisations need to thrive.

See how we can support your acquisition by visiting our healthcare finance homepage or email me at katherinew@growthlending.com to discuss your situation.