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October - November 2005

Business Forum

Health Care Special - Invest in the Care Sector

The Care Industry has over the last few years been in a state of flux. The government introduced the National Minimum Standards, many care homes have closed as they could not meet the standard required by the regulations dealing with Care homes.

What has now happened in some areas, and is increasing in many others, is that the ratio between supply and demand is being seriously affected. As demand remains very strong with the supply reducing or at best remaining static, the price has been forced upwards. The government has put several hundred million pounds into reducing hospital waiting lists. A large portion of this money has been used by Social Services across the country to fund extra beds. This in itself has reduced any spare capacity even further.

Social Services in many areas are now keen to improve relationships with the private sector to work as a team to meet the government’s demands. The NHS and care of older people are currently at the top of the political agenda.

Shifting demographics, changing lifestyles, the new regulations, the cost of labour and property values are just a few of the external factors that are reshaping contemporary healthcare.
But opportunities abound, capacity needs to be increased to cope with anticipated growth in demand. An indication of current market confidence is the development by corporate and regional operators of new purpose-built care homes.

In previous years, low or declining profits and values made it difficult for them to compete in the battle for sites, particularly against residential house builders. But with fee increases and rising profits operators are once developing new stock.

This confidence is also affecting independent operators, who still account for a large proportion of the market, they are either trading up by buying larger businesses or extending their portfolios by acquiring additional properties, the appetite to purchase is driven by a number of factors.
Improved profitability as fee and occupancy levels rise.

More purchases in the market stimulates interest in properties and drives up both values and demand.

Interest rates are low, making borrowing still relatively cheap.

Demand for bed spaces is still growing due to the rise in an ageing population and a fall in the beds available.

Can this confidence be sustained? That is inevitably the question raised by those with an interest in investing in the sector.

Today, in spite of recent new investment, we are in a period of sustained contraction regarding supply, as net bed numbers decline on an annual basis, UK capacity in residential settings for elderly and physically disabled client groups shank by some 8,700 places in the year to April 2005, an aging population where 21.3% are aged 60 and over, which by 2008 will rise by a further 1%, local authorities in the main opting out of new building, and the role of the private sector in delivering care generally accepted, we know that there will be a greater demand for care homes in the continuum of care.

We also know that, forecasts based on the current growth of Extra Care developments and domiciliary care indicate that care homes will remain a major contributor to long-term care in the future.

A recent survey by Clearwater of the wider healthcare services sector in the UK focused on which areas of the market were of particular interest to the private equity community. More than 70% of respondents said they had investments in the sector, with 43% indicating that they are particularly interested in investing in the long term care sector.

For more details regarding the security and return on investment, please e-mail on or telephone 020 8900 9808 and ask for department dealing with investment in the healthcare market.

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