Home Legal Deals within health and social care skyrocketed last year – what’s driving the surge?

Deals within health and social care skyrocketed last year – what’s driving the surge?

by Lisa Carr

Matthew Poli, Partner and Head of BLM’s corporate and commercial team in London, analyses the surge in deal activity in the healthcare sector in 2021, specifically the large volume of deals being completed in residential care-related services

The pandemic impacted millions of people across the globe, and it was those working in the social care sector who had to deal with some of the most difficult challenges. Whether it was emotionally supporting residents who were separated from loved ones for months on end, or managing widescale staff shortages, the full impact of COVID-19 on the industry is still yet to be completely understood two years on.

Despite these difficulties, there have been some noticeable upward trends in the health and social care market over the last year. Analysis from my law firm, BLM, conducted in partnership with Experian Market iQ, delved into the quantity and value of transactions in the UK Health & Social Care sector.

Our Deals Diagnosis discovered the value of deals in the UK hit record levels and stood at £6.01bn in 2021, with 26 per cent of total deal activity in residential care-related services. This included the £10.9m acquisition of residential care provider CPI Care Ltd, by Civitas Social Housing plc. Compare this £6.01bn with deal valuations in 2019 (£2.26bn) and 2020 (£1.22bn), and you see the scale and volume of activity – 2021 outweighed the cumulative value of the last two years by over £2.35bn.

Low interest rates and debt costs fuel demand

So, why has there been such a large proportion of deals taking place in care-related services? One driving factor has been a desire from investors to take advantage of low interest rates and the availability of private capital. Companies that had large war chests wanted to deploy them, with holding cash seen as extremely inefficient given the interest rates of last year. On the flip side, companies without cash had access to debt finance at historically cheap levels, which meant an even bigger appetite for investment into healthcare.

Investing into healthcare has generally been seen as a safe haven. Care home deals are particularly attractive due to the business being underpinned by a physical bricks and mortar asset. As we started to emerge from the other side of the pandemic towards the end of 2021 – restrictions easing amidst a successful vaccine roll-out – there was also an eye for growth, making residential care-related services even more lucrative. However, last year’s deal frenzy was not one-sided – many residential care businesses were also looking for a way out.

Costs and bureaucracy driving exits

Although some investors were looking to cash in on care homes, COVID-19 accelerated a desire from smaller operators to exit their businesses. The increase in regulatory burdens and costs on smaller enterprises caused many to consolidate to benefit from economies of scale. By selling to a large corporation and becoming part of a wider network of care homes, it could relieve staffing issues and spread the cost – and risk – of manging the regulatory side of things. People who owned care home businesses may well have been looking to exit to simply enjoy retirement, given a chaotic and stressful period during the pandemic.

The combination of big investors looking to cash in on homes and healthcare operators looking to exit therefore created the conditions to support a huge wave in deal activity. Now that the worst of the pandemic is (seemingly) over, is this demand for care sustainable, and will it continue to rise? As part of an ageing population where state funding remains inadequate to provide the high-level of care residents need and deserve, there will undoubtedly be an increased drive in the private sector to fill in the gaps. The pandemic has placed huge pressures on the business operations of social care operators, disrupting the industry in ways that as I said before, are still yet to be fully understand. Perhaps this will continue to drive activity with more aggregator purchasers in the future.

Related Articles