Regional care home groups could be forced to sell homes to comply with competition law or struggle to secure investment after the Competition and Markets Authority’s (CMA) ruling on a US firm’s proposed takeover of more than 600 care homes, experts have warned.
Conversely, the ruling could boost local ownership diversity and raise standards, experts said.
The comments followed the CMA ruling that parts of US Real Estate Investment Trust (REIT) Welltower’s proposed takeover of more than 600 care homes owned by Care UK, Barchester and others could be anticompetitive in some areas.
Regional concentration
“If the CMA is saying you can’t have regional concentration of assets, a regional player could face fewer buyers if an organisation is already above that threshold,” said care home group Blackadder finance director Michael Butcher.
“From a purely economic perspective, a market where assets cannot be freely bought and sold becomes constrained,” he added.
Browne Jacobson partner and corporate health lead Vicky Tomlinson said the CMA’s focus on the “influence that institutional investors and property owners can exert over operational strategy, pricing, investment decisions and competitive dynamics” signals it will “intervene and investigate” local health and care market consolidation.
Investment models
The CMA’s scrutiny of investment models used by firms such as Welltower could reset expectations around acceptable landlord-operator arrangements, said Nationwide head of health and social care Derek Breingan.
The CMA scrutiny “clears the narrative for providers as the RIDEA (REIT Investment Diversification and Empowerment Act) model has sneaked under the radar until now,” he said.
“It’s good that it exposes the pluses and minuses and gives more visibility - there’s enough fragmentation in the market for these investment trusts still to deploy capital and buy groups.”
US ownership
The case has also drawn attention to the growing footprint of US investors in the UK elderly care sector.
Mr Butcher warned that heavy investment trust involvement would drive fee inflation and long-term unsustainability:
“In 20 or 30 years’ time, investors will want to sell and move their money.
“There will always be buyers, whether other real estate investors or private equity firms, but each new owner will want a slice of the pie, creating continued upward pressure on asset values and, ultimately, care costs.
“With fees already reaching £100,000 a year, it would not surprise me if costs rose to £200,000 in 20 years because of inflation, the national living wage and rent structures,” he said.
Meanwhile, Aston Brooke director Kashif Majeed said local authority commissioners would welcome the ruling as the implications are “practical rather than theoretical” for them. He said that although “a larger group can make commissioning easier.... the same concentration can also trouble them if it reduces the number of credible alternatives in a local market.”
