Investor appetite in sector to remain despite challenges, says report

Resurgence of M&A activity across the care market last year is predicted to continue in 2022, with investor appetite remaining strong.

Releasing its annual outlook, Christie & Co reported a shortage of available stock and strong buyer demand was resulting in competitive sale processes.

The business property adviser saw a rise in the number of transactions for 2021, which increased by 14%, and deals were agreed at around 95% of the quoted asking price, it said. Christie & Co also reported a 56% increase in the average number of offerees per sale between 2017 to 2021.

Landmark deals in 2021 saw the arrival of European investors including French healthcare fund Pierval Santé, which acquired a group of Care UK investments from Legal & General. Separately, Cofinimmo have entered the UK market, as have Korian.

‘Significant investor interest will remain as UK and international capital continues to be attracted by the strong fundamentals underpinning UK healthcare,’ the report said.

Evidence also suggested decreased distress in the care market. Of the deals Christie & Co managed over the past three years, 18% included distressed businesses in 2019, 13% in 2020 and just 8% in 2021.

‘There are, however, headwinds revolving around procurement and construction costs,’ its report, Business Outlook 2022: Adjust, Adapt, Advance, pointed out. ‘Labour shortages and global supply chain issues, compounded by Covid-19, have led to rising labour costs and construction material shortages.

‘We expect this to continue as a short-term challenge but there is hope in the industry that construction material pricing will become less volatile as the country adjusts to a new normal.’

It said workforce-related challenges and rising cost pressures would be mitigated to an extent through increased occupancy rates and fee levels.

Christie & Co said land availability in places with compelling underlying demographics remained scarce and securing planning permission continued to be a ‘highly protracted, costly, and uncertain process’. Also, an increasing number of operators were considering lease agreements, often within the context of new build development assets.

Richard Lunn, managing director – care at Christie & Co, said: ‘Despite pandemic related challenges, 2021 saw a resurgence in market activity with strong demand and limited supply underpinning pricing across most segments of the market.

‘Whilst there are current operational challenges, particularly around staffing, we believe that the outlook for the sector is very good and anticipate that 2022 will be a busy year.’

ITV journalist Robert Peston, who chaired a webinar launching the report, said the government had not set out a ‘credible plan’ of how the sector would be funded. ‘It is very difficult to see that we are suddenly going to wake up in two or three years’ time with an NHS saying it doesn’t need all that money from the national insurance increase.

‘Although there is this semi-protection that NI money is going into care, I think we have got to be sceptical about it…’

He added the ‘big uncertainty’ was what the government meant by self-funders not paying more for their care than those funded by local authorities. ‘It could mean downward pressure on what care homes actually receive for their services,’ he said.