Healthcare Vital Signs

For many years people have looked at the UK care home market, raised an eyebrow at the proportion of homes and beds which remain in the hands of local operators and concluded that consolidation is a certainty. Surely over time it will follow the well-trodden path of widget markets? With two or three mega corporates hoovering up the sector and a homogeneous care delivery format being delivered, leaving the only real interventions coming from government as they step in when Mega Corp A tries to swoop on Mega Corp B. In this world, we are but a step away from Skynet doing the morning medication round. This line of thought is often tied into the observation that care homes in the UK are a generation behind the USA and several European markets where a retirement to end of life care model in the hands of corporate providers is far more established. So surely the fate of the UK market is inevitable? If you turn to some of the key deals of 2017, it looks like the premonitions are playing out and the process of consolidation in earnest is afoot. HC One, having formed from the ashes of Southern Cross in only 2011 and presumed by some to be a quick fix entity which would flip the care homes on once stable, has rebuked this assumption with great gusto. They have been active and not in the singular way some cynics would assume. In early 2017 they acquired perhaps the best reputed multiple operator in the north east in the form of Helen McArdle (some 1,350 beds, 19 homes and one under construction), proving that they were not just about the turnaround assets which made up much of the legacy Southern Cross estate. Then in late 2017 we saw the swoop of the consolidator with the acquisition of 122 BUPA homes, creating the UK’s largest care home group such that HC One comprises over 350 homes and almost 22,000 beds. Surely this is the sign we were expecting and the UK market has stepped over the precipice. So 2018 is therefore all about major consolidation and a fundamental shift in market structure. In short, several factors need to be made clear. The sale of the BUPA units to HC One was in some ways a game of musical chairs in the league table of UK care operators; BUPA previously being top dog in bed number terms and HC One being in second place. The late 2017 deal simply saw BUPA fall down the table, but still forming part of the Big Five (HC One, Four Seasons, Barchester, BUPA and Care UK in size order). We did not have the entry of a new entity or smaller operator stepping in as a fresh consolidation vehicle and it is likely that the juggling between the Big Five will continue once the ticking package that is Four Seasons’ RISE OF THE CONSOLIDATORS With around 34k beds in the public sector, this suggests that just over 68% of all UK bed stock is in the hands of providers outside of the top 25 and with fewer than 1,250 beds. debt structure can bear no more. The picture is therefore not one where Mega Corps have turned the acquisition hoover to the ‘on’ position. We are of the view that the current broad structure, where only some 6.5% of elderly care homes or 12.5% of beds are in the hands of the Big Five will largely remain the case, bar some fluctuations. Even if one looks further down the scale to perhaps the top 25 operators, this still only comprises some 16% of elderly care homes or 29.5% of beds. We’d love to hear your thoughts on this topic. Please get in touch at TOM.ROBINSON@CUSHWAKE.COM 24 | CUSHMAN & WAKEFIELD