Care homes have taken a huge knock lately. Covid has scared the general public, and the motivation to ‘put’ a loved one into care is lacking across the nation. It’s understandable- after all, care homes tend to become the scapegoated villain when things go wrong. This has, along with Covid deaths, led to a general reduction in occupancy across the UK.
A care home’s financial sustainability (in care we use the word sustainability to soften the terminology of ‘profitability’) depends on occupancy vs staffing- most other costs are relatively fixed (see upcoming post). This model of care provides the incentive to deploy minimal staffing, whilst maximising occupancy. Let us not argue here about morality, ethics, or anything else. Let us look at the business model. CQC, quite rightly, require sufficient staffing levels to provide safe care. That means, if a model is truly ‘perfect’, a home would be full of low needs residents, requiring minimal staffing. Utopia. Not reality. The reality of the matter is that, by the time residential care is considered, people do not generally have ‘low needs’. This is especially true of homes who wholly or majorly rely on LA funded placements- the government simply will not fund care unless there is no viable cheaper alternative.
So why should we look to acquire homes reliant upon LA funding? There is a lot of talk at the moment about a shake up in care. What that looks like, nobody fully knows, but for the first time in memory, there are people ‘in the know’ who are making waves. In the coming 12 months, if not the coming 6 months, there is evidence to suggest that a government level cash injection is coming. Now consider the following:
A care home, following covid, has an occupancy of around 70%, the finances are poor, and the owners are drained. They’re looking to sell. Their occupants are generally LA funded, and the EBITDA is probably red or near break even. Buy it (following DD of course). Why? Occupancy will increase. We are about to see a huge influx of beds being required due to people not being assessed, or being looked after by homeworking or shielding families, for the past year. Then fees may well go up. Plus, if looking at EBITDA multiples as a valuation, you’re going to get a steal.