Acquiring a care home business – top tips

Corporate lawyer James Brawn originally wrote this article for the December 2024 issue of Caring Times magazine, a publication for care managers, owners and directors, providing a guide to succession planning for family-run care home businesses.

Acquiring a care home business – top tips

In the context of acquiring a care home business, there are a variety of factors that a prudent buyer should bear in mind so as to enable the level of risk involved in the acquisition to be determined and the transaction terms to be properly negotiated and finalised. Set out below are some top tips for buyers to consider in connection with a proposed care home acquisition.

Give thought to the transaction structure

Numerous professional healthcare businesses, such as care home operators, are structured as limited companies. Other structures include sole traders, partnerships and limited liability partnerships. Where a corporate structure is involved, there are broadly two transaction structures: an asset purchase and a share purchase.

An asset purchase will result in the buyer stipulating which parts of the target business it would like to acquire. The individual assets which comprise the business (including physical assets, contracts, intellectual property rights, goodwill, etc.) will be purchased by the buyer and, as a result, the business will be acquired as a going concern, allowing the buyer to continue to operate it post-completion.

A share purchase will involve the buyer acquiring the shares of the company which operates the target business, including any associated liabilities. It is often the case that acquisitions in this sector are carried out via a share purchase due to the tax implications and it being simpler from a regulatory perspective.

Legal, tax and accountancy advice is likely to be required when determining the optimal structure.

Put in place a set of heads of terms

Heads of terms are entered into at the start of a transaction and act as written confirmation of the key transaction terms agreed between the parties, as well as outlining the timetable for completion of the transaction.

Whilst typically non-binding (subject to one or two exceptions), heads of terms help to ensure parties are aligned throughout the negotiation process and act to flesh out any ‘showstoppers’ prior to significant costs being incurred.

Consider requesting exclusivity

The transaction heads of terms may contain exclusivity provisions, or a standalone exclusivity agreement may be entered into between the parties during the preliminary stages. This will ensure that a potential buyer is able to negotiate with the seller on an exclusive basis in relation to a prospective transaction for a defined period of time.

A potential buyer may seek to be afforded exclusivity as a comfort mechanism and to help mitigate risk in terms of losing out to a rival bidder after investing time and incurring costs in connection with the proposed transaction.

Undertake due diligence

Due diligence is the process of investigating the business being acquired, and can broadly be broken down into commercial, financial, tax and legal workstreams. It is a crucial process, as it enables a buyer to make an informed decision as to whether or not to enter into a potential transaction.

In relation to legal due diligence, some of the key issues to consider are as follows:

• Regulatory – a thorough review of the inspection reports undertaken by the Care Quality Commission (CQC) should be carried out as well as interviews of key personnel (including the registered manager and nominated individual) should be conducted.
• Employment and pensions -again, a thorough review of the employment practices of the care home including pensions provision should be conducted. For example, copies of all employment contracts or terms of engagement/supply when agency staff are used should be requested. Employment policy documents and pension-related documentation should also be considered.
• Contractual obligations – reviewing existing business-related contracts, such as those involving catering and IT, is vital so as to highlight any potentially onerous ongoing obligations and to ascertain what impact (if any) the transaction will have on these and whether any third party consents will be required as a result.
• Property – the care home property itself will be a fundamental element of the deal and engaging in an extensive property due diligence exercise is vital.
• Litigation – enquiries should be made as to whether there are any ongoing or potential disputes or claims in relation to the business. Any such dispute or claim may affect the value of the business and have other potentially adverse consequences.

Liaise with the CQC

You should involve the CQC as early as possible and obtain from them any necessary consents, approvals or registrations to ensure that the acquired business can continue to be operated post-completion.