How instability in the economy may impact the sale and purchase of care homes
With the cost of living rising, energy bills rocketing and bank borrowing becoming more expensive, where does that leave the market of selling and buying care homes?
Care homes have generally proven to be robust assets that have performed well during economic downturns. Nevertheless, the current uncertainty is bound to unsettle both sellers and buyers and create challenges.
Things to look out for as a buyer
Most people looking to acquire a care home are likely to be seeking bank financing. With the cost of bank borrowing going up. as a buyer, it’s important to shop around and check the terms of your loan agreement, paying particular attention to interest payments (and whether they are fixed or variable), the term of the loan and early repayment charges. With increasing energy prices checking what contractual arrangements the home has with utility providers will be an important aspect of your due diligence. Now more than ever, it will be critical to sense check the home’s supply chain generally to ensure that it is getting value for money. If, once you have taken over, you want to change suppliers for various things, you will need to understand whether you are tied into certain contracts for a particular length of time.
Things to look out for as a seller
As buyers will be approaching the market more cautiously, as a seller, you need to consider how that may impact your sale. For example, buyers are likely to negotiate harder on the price. They may take a more risk averse approach to the transaction and rather than pay the full amount for the home upfront on day one, they may try to negotiate an “earn-out”. Whilst a large proportion of the overall amount is paid on day one, a part of it will be held back and will only be paid if the home maintains or increases its revenue after the sale. For a buyer, this is a sensible way to mitigate the risk of the business performing poorly after taking over. If, as a seller, you are willing to agree to this, it will be important to ensure that the “earn-out” provisions are clear in the sale contract and that you have clauses protecting you.
First published in Care Home Management magazine, January/February issue 2023