Buying or Selling a Care Home Business

The UK care sector has been an area of consistent growth in recent years, driven by the need for housing and quality of care required to meet the country’s ageing population. Many investors consider that we are likely to continue to see exceptional demand for senior housing in the coming decades. This is likely to fuel an increasing level of transactions in the sector and whether you are considering investing in the industry or consolidating an existing portfolio or disposing some of your assets, there are a number of legal and commercial issues to consider and legislating for these at the outset can help facilitate a smooth process to completion. Here are some of the key considerations:

Share or asset purchase?

Agreeing the structure of the transaction is fundamental. Whether the transaction is by way of transfer of the properties and business assets as a going concern (i.e. an “asset purchase”) or a purchase of the share capital of the trading company operating the business (i.e. a “share purchase”), will be influenced by both commercial and tax implications for both parties. It is therefore essential to engage with tax specialists from the get-go. More often than not, sellers of owner-managed businesses will favour a share sale which allows the seller a clean break from their business as it is generally more tax efficient. A buyer, however, may prefer an asset purchase which gives an opportunity to exclude unwanted liabilities from the sale for the seller to deal with.

Due Diligence

Once a sale is agreed in principle, the buyer will undertake a due diligence exercise of the business. The key to a successful due diligence process is preparation. A datasite will be prepared which will hold all the documentation concerning the business, including the properties (including any construction documentation), employees and their contracts/visas, accounts, key commercial contracts, CQC registration and correspondence, IP documentation, company policies, health and safety files, employment etc – the list goes on!

The due diligence process should not be under-estimated so at the very outset of the transaction, if on the sell side, we work with our clients to create a comprehensive datasite in the form we know the buyer would want and seek to anticipate and cater for their due diligence enquiries. With an asset purchase, where the buyer will not inherit the target’s tax profile and other assets may also be excluded the due diligence exercise will be less extensive than with a share purchase.

We would also recommend that at the outset of the transaction, a confidentiality agreement or non-disclosure agreement is entered into between the parties to ensure that data protection and confidentiality requirements are respected.

Care Quality Commission (CQC)

If the buying entity is not registered with the Care Quality Commission, it is essential that an application is made as soon as possible because registration can take up to 3 months (and that is a conservative estimate). A buyer may wish to consider exchanging on the purchase of the property subject to the registration with the CQC being approved. If the shares of a company already registered with the CQC are being purchased, this will initiate a “change of control” and CQC must be notified. In Wales, the Care Inspectorate Wales (CIW) deals with the process (similar principles to the CQC but different procedures). It is very important that both parties work together with the CQC; if all admin on both sides is current, it significantly helps the registration process.

Registered Providers or Registered Charities

There may be registered providers (housing associations/organisations that are run independently from local councils) or charities who are the buying entity and as such they will need to check their constitution to confirm whether the business being acquired would satisfy their permitted objectives. If not, then the buying entity’s investment policy and the Charity Commission guidance would need to be reviewed. Registered providers should also inform the Regulator for Social Housing of any proposed acquisition.

For the reasons given above it is therefore important that both the buyers and sellers seek the correct legal advice and support at an early stage as this will only make the transaction process less gruelling. Edwin Coe can advise on the entire transaction cycle for care home businesses (whether for the seller or buyer) and the different areas of legal expertise required, be that advising from a corporate perspective on structuring the transaction at the outset up to the employment, property and intellectual property elements that invariably arise.

Legal Support

Edwin Coe is a member of Care England. Our multidisciplinary Later Living & Care Services team of lawyers provide practical, expert advice to care home businesses.

 

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