Private equity ‘a benefit not a threat to social care’

Private equity has not led to service disruption in social care and could prove vital source of investment in future years, finds report by market analysts Laing & Buisson for private equity industry.

Private equity is an important source of investment for social care that poses little threat to the quality of care, market analysts Laing & Buisson has concluded in a report for the private equity industry.

Despite widespread concerns that private equity finance poses a threat to the quality and continuity of care – heightened by the collapse of Southern Cross last year – Laing & Buisson concluded that this was not supported by the evidence.

Its report, The role of private equity in UK health & care services, was commissioned by the British Private Equity & Venture Capital Association, but Laing & Buisson stressed it was fully independent.

It found that private equity-backed businesses were responsible for a relatively small proportion of the social care market: 8% of the market in care homes for older people and physically disabled people; 10% of the learning disability and mental health care home market; and 11% of the domiciliary care and supported living markets.

Its report found no case since 2008 in which the failure or restructuring or failure of a private equity-backed provider had resulted in significant disruption of social care services. It also pointed out that Southern Cross’s former private equity owner, Blackstone, was not responsible for the model of leasing care homes from property companies that ultimately led to Southern Cross’s demise when rental obligations grew too great.

Laing & Buisson said that private equity investment had helped renew and modernise the state of care homes and other parts of the sector over the past 10 years, and said that it could prove an increasingly important source of investment over coming years due to constraints in state funding.

The report said that private equity companies’ ability to make a profit from social care over coming years would most likely come from “building their long-term value”, rather than property deals. It also rejected concerns that private equity tended to strip companies of value in a bid for profit, for instance by cutting staff.

“Private equity companies have a strong financial incentive to sustain quality over the medium to long term, since they make their returns by holding their investments for several years and the best price on exit is likely to be achieved if there is at that time a realistic prospect of further value growth for the acquirer,” said report author William Laing.

The country’s biggest care home provider, Four Seasons Health Care, was taken over by private equity firm Terra Firma in April, sparking concerns from trade unions GMB and Unison.

“Private equity takeovers are noted for looking at ways of maximising profits,” said national officer for social services Helga Pile, at the time. “The elderly care sector by contrast is woefully underfunded and cannot afford to lower the quality of care by cutting staff or depressing the training and wages of people who work in it.”

Mithran Samuel is Community Care’s adults’ editor.

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