Private equity accused of undercutting long-term home providers

Children’s home and fostering leaders have raised concerns about the impact of private equity firms on the sectors, after one of the largest residential providers, Sedgemoor, went into administration.

Sedgemoor, which ran 65 children’s homes, 14 schools for vulnerable children and a fostering agency, collapsed seven years after it was bought up by private equity firm ECI for £13m. Private equity firms buy up businesses, often using debt finance, taking them off the stock market if they are listed, and then seek to improve profitability before selling them on.

While ECI blamed its difficulties on a shift in local authority commissioning away from residential care towards fostering, Independent Children’s Homes Association principal officer Roy Williamson raised questions about the impact of private equity on the sector.

He said a number of ICHA members were “struggling to stay afloat” because they were being undercut by private equity-backed providers.  However, the latter’s prices were “not sustainable” over the medium-term.
He added: “They are pushing people out who are in it for the long-term.”

Fostering through Social Enterprise, which represents third sector fostering agencies, claimed 30% of independent agencies were now private equity-owned.
Spokesperson Kevin Williams, head of The Adolescent and Children’s Trust, said: “Private equity has one primary motive and that is to maximise the return on their investment.” He said this was leading to increased staff workload, acquisitions of smaller providers and “tough financial targets”.

Jonathan Stanley, principal officer of good practice body the National Centre for Excellence in Residential Child Care, said he did not have any evidence that private equity-owned providers were undercutting others, though he had “word of mouth evidence that a number of providers are leaving the market”.

Andrew Christie, a member of the Association of Directors of Children’s Services’ health, care and additional need committee, welcomed private equity’s impact on fostering, saying acquisitions could improve efficiency.

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