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PRIVATE CARE
ave eo le wi lea nin

isa ilites eco e nancial asse s

Put together a rise in the privately-owned residental market in learning disabilites, an exodus of
small-scale private providers and the rise of debt-laden mega-providers whose frst loyalty is to their
investors, and you have a problem. van a e * explains a complex fnance web, and the threat it
poses to the independence of people with learning disabilites.

One of the most obvious reasons All this is funded on borrowing so as
for this is relatvely simple – fee levels a provider there is a dual focus.
are signifcantly higher in learning First, you must maintain their EBITDA
disabilites residental care. Average fee (Earnings Before Interest Tax Depreciaton
levels are at least £500 per week more and Amortsaton), which is an
than in older persons care – and many important measure for your investors,
more are considerably higher stll – partcularly if there are plans to sell the
refectng the complexity of need of business. Second, you must extract as
people with learning disabilites as well as much cash as possible from the fees to
the need to ofer more actvites and pay down some of the debt you used to
skills acquisiton than other sectors. acquire the business, and potentally pay
Services have tended to be smaller, giving yourselves some dividends or a
less opportunity for economies of scale ‘management fee’. Complex webs of
for providers and a more person-centred, company ownership structures are
homely environment. However, these fee created, money moves around a myriad
levels, as well as the signifcantly longer of related companies, becoming ever
stays of people with learning disabilites harder to track. Some of it goes ofshore
in residental care, the fact that the care into further fnancial opaqueness,
homes are a physical asset that can be all designed to avoid paying corporaton
borrowed against, and the entrely tax and to fnancially engineer a
e alk a lo a ou akin an state-funded market, have created business that can generate EBITDA
W asse - ase a oac o an environment that is atractve and cash but never make much of an
su o tn eo le wi isa ilites i for investors. actual proft.
is a o eve a lan ua e a ou usin
s en an o ental ac oss e social Once the business is established,
ca e s s e . oweve e e is ano e The objectve is not to the next phase is to ‘fip’ the company.
ou w ic views eo le wi lea nin build up a nest egg to retre The private equity operator in partcular
isa ilites as a i e en e o asse on once the mortgages have does not think in 15 to 20 year cycles like
a nancial asse o e o owe a ains the traditonal care home operator.
in inc easin l co le nancial been paid of on the care The objectve is not to build up a nest
ansactons un e iva e e ui home. They plan in three to egg to retre on once the mortgages
inves en anks an ension un s fve year cycles: borrow a load have been paid of on the care home.
o ac oss e lo e. of money, buy a business, They plan in three to fve year cycles:
take as much cash as possible borrow a load of money, buy a business,
Amongst all the headlines in the specialist take as much cash as possible out while
and mainstream media about the fnancial out while growing the growing the business and then sell it to
crisis in care, one sector is largely keeping business and then sell it to the the next investor. And repeat. Some might
its head down – the privately owned next investor. And repeat. ask, ‘so what’?
residental care sector for people with
learning disabilites. Some of the Some of the largest learning disability
pressures that impact on the wider care In recent years there has been a huge care home brand names are on their
market – such as the natonal minimum ratonalisaton in the privately-owned third or fourth owners in a relatvely
wage and the current policy mess that is learning disability residental market. short space of tme. They have grown to
sleep-in rates – are undoubtedly The growth of the large natonal and signifcant size through acquisiton and
causing providers some operatonal and regional private providers has been are increasingly dominant – so dominant
fnancial concerns. They also have quite remarkable. The model is prety in fact that collectvely they are
problems recruitng that are similar to consistent: look for external fnancing to responsible for many thousands of
those in the older person sector. fund acquisitons from the old ‘mom and learning disability beds. So why should
However, the narratve of a private pop’ providers looking to exit the market, we care, they are doing OK aren’t they?
provider sector in fnancial crisis is not and sometmes open some new homes The services are mostly satsfactory
borne out in learning disabilites. yourself as well. according to CQC?

6 Vol 31 No 2 | Winter 2017 o uni Living www.cl-initatves.co.uk