Four Seasons, Private Equity and the Care Sector

Money Talks - Do you listen?

Both the Guardian and the Financial Times report on the possible imminent buy out of Four Seasons by ‘Terra Firma’ – a private equity company. Guy Hands, who chairs the company is described by the Guardian as

the tax exile and private-equity baron best known for his disastrous debt-fuelled takeover of EMI

Comforting.

Four Seasons Healthcare is a large provider of nursing and residential care homes in across the UK. As it says on the front page of their website

We are the leading independent healthcare provider in the UK. We own and operate over 500 care centres and nursing homes, employing around 30,000 people. Our care homes and nursing homes are unique and we’re proud to offer consistently high standards of service and care.

Seems like a perfect investment opportunity for a.. er.. private equity company, right?

Maybe I’m being a little disingenuous. Having an A level in Economics doesn’t give me a significant understanding in financial models of support however what is blatantly obvious is that the sector as a whole (and we’ll push Southern Cross into the mix here as well) have over borrowed on assets which haven’t produced the intended profits.

The further link with Southern Cross is the irony (or maybe it isn’t) that Four Seasons took over a number of Southern Cross homes when they went under.

The Financial Times explains that Four Seasons is looking to refinance a £780 million debt and is ‘likely to raise £525 million of new debt’.

These kinds of fantasy figures have little in the way of substance to me. But that’s a lot of money and I do wonder at the amounts of money knocking around in these health and social care sectors.

Last month Terra Firma bought a Gardening Centre group for over £200 million.

The type of business is of little interest to the company putting the money in. It is purely and simply a business opportunity. This is one of the reasons I shudder at the leaking of health and social care into the private markets. The reality of financing, refinancing and profit making can be cut throat but for the people who live in these nursing homes it’s worth remembering that they are possibly the last years of the lives of people at stake rather than lilies and tomato plants.

Four Seasons has a deadline of September 2012 to refinance the debt it has. It is currently owned by a consortium of banks. A private equity company will be no worse nor better than what exists now unless it is able to offer the company more financial security (which I presume it is) but the interesting part, for me, as an outsider to the world of equity and financing is that this is not the first very large healthcare company to be switching hands and talking in terms of millions regarding profit in health care.

The Matlock Mercury (in the East Midlands) has a story which raises concerns by the GMB union when Southern Cross staff were transferred to Four Seasons and they asked for a response from the CQC. They write

Recently the Care Quality Commission said as follows: “The large health and care organisations are not overseen financially by anyone.

“The Care Quality Commission (CQC) require that a provider is financially stable, but it is outside of our remit to carry out financial audits or financially background checking of any service provider.

I can appreciate that. The CQC is pushed but isn’t it worrying that there is no-one at all overseeing whether service providers are ‘financially viable’? It doesn’t need to be the CQC – but perhaps – as we move towards a situation where more and more health care services are moving into private hands – it should be someone..

This is the future of the NHS. It is already here. Profits will be pushed to shareholders and companies are accountable to those shareholders rather than the people who use and need the services provided.

Tomorrow, this will be the hospitals.

picture by w4nd3rl0st at Flickr