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


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

9 thoughts on “Four Seasons, Private Equity and the Care Sector

  1. Thx for this post. We are making a webdocumentary on the issue of solidarity in social services in Europe and the influence of eu market policies. A study has just been published on social services, describing among others the landscape of long term care (profit, non for profit, public, private). Uk is also described. Study gives also general trends in Europe. Last post on the study :

  2. As the CEO of a large not-for-profit provider and also the chair of the National Market Development Forum (part of TLAP) I too find such financial machinations difficult to fathom. Therefore accountability is fraught. Perhaps we need more transparency not just about viability but also of how surpluses are spent or re-invested to the benefit of the health and social care sectors.

    • Thanks – that sounds like a better way to go with this. I am not sure what the answer is as we have moved too far down the road.

  3. There are so many misconceptions here that I hardly know where to begin.

    You assume that everyone in the private sector is determined to run businesses badly and “screw the customer”. This is the opposite of the truth. For sure, there are good businesses and bad businesses, just as there are good and bad not-for-profit-distribution and state entities. Sensible managers and shareholders want to run good businesses that provide what their customers want. If you don’t, in the long run you don’t have a business, let alone profits. That is accountability. If providers are forced to run as cheaply as possible – well, that’s what the purchasers want. Try asking them to pay more and see how far you get.

    The structure of a business is not an automatic guide to the quality, let alone the morality, of management – although as badly run businesses go bust, at least there is a mechanism for change which is entirely absent in other sectors which puts pressure on businesses to improve their output or risk failure. This is why numerous studies in social care have shown that private sector providers are on average 30% cheaper than state provision, quality for quality.

    Let’s not forget that profits are merely a measure of the value of the output less the value of the input. If the output isn’t worth more than the input, all you’re doing is wasting resources. One problem with state provision is that there is no way to measure these relative values. A market provides that mechanism.

    It’s not surprising that health and social care providers, large well-run ones, generate millions in profit. They employ large quantities of capital. It’s a big sector, with high demand. If the long term return of capital employed in the sector is good, that will attract investment, which I would have thought you would approve (and certainly the taxpayer or charities can’t provide it). If it’s bad, it’s a signal that the market (which after all is merely shorthand for the collective wisdom of purchasers) doesn’t value what is on offer, or that the sector is overcapitalised, or has other structural problems.

    Don’t forget, as well, that a company is a legal fiction. Quoted care companies can be owned by anyone – possibly even you though your pension fund. Have you lobbied your pension manager to sell the holdings in health or social care? You should, if you’re to be consistent. But beware: if everyone did, the sector would collapse. That would hardly benefit the service users.

    Quoted companies have a public signal that they’re healthy. The share price. There’s no need for CQC to try to second-guess it – it’d be pointless and I very much doubt they’d do better than the collective wisdom of the crowd. Private companies are impossible to judge, anyway – it all depends on the individuals concerned whether they’re financially sound. You certainly can’t tell from published accounts, and asking CQC or anyone else to do so would be to set them up to fail, apart from adding yet another layer of regulation and bureaucracy to an already over-burdened sector.

    Besides, regulation increases profits (they act as barriers to entry – did you cover that in your economics A level?) – so asking for more regulation will have exactly the opposite effect on profits that you say you want.

    I’m also disappointed that you, like so many others, think there’s something wrong with the private sector providing health or social care. Is it really worse than providing food, or housing, or clothing? I’d certainly rather be in social care than making armaments or running a Premier League football club, and I don’t hear many complaints about private sector involvement in those. Surely it should be applauded – unless you believe that only the state should own the means of production, distribution and exchange. That’s a legitimate position, of course, and maybe you do; but having had lengthy first hand experience of the USSR and other socialist economies (never mind the inefficiencies of the state in the UK), I can assure you that I don’t.

    A market in private provision of health and social care provides better services at lower cost than any other model – just as it does in any other sector you can name. This can be shown empirically, and has been. Frequently. To argue otherwise on the basis of mere attitude is nothing better than prejudice.

    Other than that – stimulating post!

    • Fair enough 🙂 In my defence it was a long time since my A levels! Seriously though I do appreciate your comment. I am not strictly of the mind that private is bad and public is good – but have seen since the contracting out of services and drive to the bottom regarding quality – that is as much about commissioning policies and driving block contract costs down to the extent that quality can’t help but be affected as shareholders profiting – but I do want to see reinvestment of profits.

      I am not proposing the CQC takes the role of regulating – I’m particularly saying that they shouldn’t actually but that doesn’t mean noone should.

      A race to the bottom in terms of quality as costs are driven down and decent salaries and conditions done away with to bring in short term staff from overseas employed on minimum wages is not something the public sector partakes in – I do wonder if this is an economy which is acceptable to those who receive the services.

      I know there are fantastic private companies that deliver excellent care and some real problems in the public sector but that doesn’t mean that we can’t wonder how this happens when the lives of people are swapped for dockets on the stock exchange. As I said, it isn’t my forte so thanks for setting me straight 🙂

      • I suspect if we met for a pint we might agree more than disagree – always worrying! Commissioning is what drives standards down, without a doubt in my mind – and as a small independent provider I am routinely applied at the standards of behaviour of purchasing commissioners. They behave in ways that in the real world of business would put you out of business in months.

        The only point I’d like to make on your reply is about reinvestment of profits. Sure, some is good but if I put my capital at risk, either directly or through my pension fund, aren’t I entitled to some return on it? Not much point in doing it otherwise. 😉

  4. You’re right – absolutely you are and I don’t discount the need for salaries (and healthy ones at that) in the process. I’m probably less intransigent than I sound and I have certainly come across some fantastic private providers. More of my venom is directed at commissioners pushing prices down and favouring large providers over smaller ones that might offer more specialist and individual care but may cost more.

    My opposition to that has come from seeing over many years the effect that it has had on quality of care and being discouraged from using some providers which we have had very good relationships with because contracts have been made with others.

  5. my husband is in Uk at the moment trying to help his gran. she has been diagnosed with slight dementia (which was only assessed using MIMs and her score has not altered in over a year…so where;s the dementia?). now the NHS will not release her into my husband’s care and are trying to place her in a care home (against her wishes – and yes she has capacity). they will then take her home to cover costs……everything is against the MCA and MHA and it seems nothing can be done about it…..

    mind you the lady next to her in the hospital needs to go into a home but lives in council housing…they say there’s no room for her?????

  6. I don’t even think you need an A level to work this one out….

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