Private equity and residential care

The Southern Cross/Care Home saga looks like it could become a tragedy - for residents, employees, families and others. The story though is much wider than one provider. The Municipal Journal has quoted some research by  UNISON that makes worrying and startling reading. Southern Cross is not the only provider under real pressure.

I've also attached a link to the Blackstone website, if only because many readers might  not yet have looked into Blackstone's part more deeply. It's worth a look.

http://www.blackstone.com/cps/rde/xchg/bxcom/hs/newsandviews_2011-6-2-1.htm  

The MJ article on UNISON's report says in relation to venture capital's involvement:

Causes at the heart of the care crisis:

• Some companies borrowed too heavily, despite their financial performance being too weak to repay debts on agreed terms.
• As people live longer, the demand for care in their own homes has gone up, in preference to residential care.
• Local authorities lost much of heir grant funding form central government and have cut spending on social care services.
• The fall in the value of elderly people's own homes means that many don't have enough funds to pay for residential care.
• The collapse of the property sector means that, in many cases, care home owners borrowed more than the reduced value of their properties, breaching banking covenants.
• The collapse of the banking sector meant it became impossible for some providers to renew borrowing facilities on affordable terms.

The care sector and the private equity 'merry-go-round' :

• Southern Cross was floated on the stock market by Blackstone, which obtained a 400% return in two years on its acquisition. Southern Cross is now at risk of collapse.
• Allianz Capital Partners made a return of 100% by acquiring Four Seasons in 2004 for £775 million, selling it four years later for £1.4bn - the business then collapsed in value.
• 3i private equity fund brought a 38% stake in Care Principles for £1.5m in 1997, the remaining amount in 2005 and sold to to Three Delta in 2007 for £270m - a return of 390%.
• Tunstall was acquired by Bridgepoint Capital in 2005 for £225m, merged with Birdgepoint Investment and sold on after three years for £514m.
• Sovereign Capital achieved a growth in value of around 100% after buying Tracscare for £26m in 2004 and then another four care businesses for £20m and selling the enlarged group for £200m. It owns City & County Healthcare who are currently undertaking a programme of acquisitions of other businesses in the domiciliary care sector.