The Competition and Markets Authority has moved quickly on the most closely watched care home transaction in years. With the full Phase 1 decision now published, alongside the regulator’s 21 May proposal to accept Welltower’s remedies, we finally have the detail behind the headlines – and it repays close reading by anyone operating, owning or financing care homes.
Two documents matter here. The first is the Phase 1 decision itself, in which the CMA concluded that Welltower’s acquisition of more than 600 homes – formerly run by Barchester, HC-One, Aria Care and Danforth Care – gives rise to a realistic prospect of a substantial lessening of competition in 30 local areas across England and Scotland. The second is the CMA’s proposal to accept a package of undertakings in lieu of a reference, which, if confirmed, allows the deals to be cleared without a six-month Phase 2 investigation.
Local areas, not national share
The most instructive feature of the decision is how narrowly the CMA drew its concerns. It assessed two distinct markets – residential care for the elderly and nursing care for the elderly – and treated both as fundamentally local, on the basis that proximity is one of the most important factors when a family chooses a home.
Out of more than 600 homes, the problem reduced to 30 catchment areas where the combined entity would hold a significant share of local provision. For a transaction of this scale, that is a strikingly contained outcome, and it confirms that competition risk in our sector is now assessed home by home and town by town, not at portfolio level.
Property ownership counts as influence
Equally significant is the CMA’s reasoning on who actually holds competitive power. The regulator concluded that Welltower, as landlord, has both the ability and the incentive to influence the competitive offering of homes where it enjoys local market strength – and, separately, that operators may have the same ability and incentive in the homes they run. The CMA’s analysis even distinguished between Welltower’s RIDEA sites, where it shares in operating performance, and its triple-net leased sites, where it takes rent alone. The message for the sector is unambiguous: the structure through which capital is deployed does not place it beyond the reach of merger control. Landlords, REITs and investors are now squarely within the frame.
A remedy that reshapes ownership rather than blocking the deal
The proposed remedy is a pragmatic one. In the areas of concern, Welltower has offered to sell its ownership of certain care home properties and, for others, to reallocate the operations to a new operator. The CMA believes this could resolve its concerns and will consult on both the package and the identity of the purchaser or purchasers in due course.
That second point deserves emphasis. The regulator will scrutinise who buys the divested homes – a suitable purchaser must be genuinely independent and capable of competing. For well-capitalised regional operators, mid-market groups and family-owned providers, this is a rare opening: a tranche of occupied, trading homes in defined locations is likely to come to market through a process where the CMA actively wants a credible competitor to emerge. Opportunities of that kind do not appear often.
What operators and investors should take from this
For those contemplating their own transactions, three practical points stand out. First, run a local-market overlap analysis early – ideally before heads of terms – because national footprint tells you very little about where the CMA will look. Second, treat property-side and operational-side influence as equally capable of triggering review; the RIDEA/ triple net distinction shows how granular the regulator is prepared to be. Third, build remedy risk into deal structuring and price, since divestment or operator-reallocation may be the route to clearance rather than a deal-breaker.
The Welltower outcome should reassure the market that large-scale investment in UK care is not off the table. But it has also reset the rules of engagement. Consolidation will continue – the demographic case for it is overwhelming – yet the path to closing now runs squarely through the CMA, and the earlier that is planned for, the smoother it will be.
This article is for general information only and does not constitute legal advice
Monica Macheng is a senior partner and head of corporate healthcare at Hill Dickinson.
