If you are planning to sell your care home, or if you are considering the succession of your care home business, read this article to discover what you need to keep in mind, and how to get your business ready for a smooth transaction.
There are a variety of reasons why you may be considering whether to sell your care home business, whether this relates to the struggles faced by many operators within the sector as a result of increased financial pressures from recent years, a consolidation of your portfolio of assets, or simply wanting to progress onto the next chapter. The decision to sell can be a challenging one, but with the right support and preparation, the transaction can be much more straightforward.
There are two possible ways to structure any potential sale, either as an asset sale, or a share sale. The structure will largely depend on how your business is currently operated. It is important to appreciate the differences between the two structures, and how this may impact on a proposed sale.
An asset sale usually involves the sale of the property and business assets together as a going concern, whereas a share sale means selling the whole of the trading company which owns the relevant assets and business. The main drivers around the decision as to structure are usually the tax implications for both parties. Independent and robust tax advice should always be obtained to ensure you fully understand the tax consequences of the transaction. From a seller’s perspective, a share sale is usually far more attractive due to the potentially more favourable tax treatment, as well as the ability to cleanly exit the business without the need for further steps.
On the flip side, a buyer may be keen to structure the transaction as an asset sale as a key benefit is the ability to leave unwanted liabilities behind in the selling company, with a share sale the buyer gets it all (good and bad). The structure will ultimately come down to a negotiation between the parties and what can be agreed.
With either route if there is existing funding and security over the business, the consent of the lender will need to be obtained and the liabilities and obligations settled prior to the sale or out of the sale proceeds.
Regardless of the reason for selling your care home, there will always be a variety of factors which will impact its valuation. It is fundamental that you get an accurate valuation of the business to ensure the selling process is started smoothly. It also helps to manage your own expectations in terms of the price you are expecting to achieve through a sale.
Some factors which may affect the valuation of the property are:
Whilst lawyers are not able to carry out the valuation process, how the business has been valued flows through the whole transaction, in particular at the due diligence stage where the buyer will be seeking to verify the basis of the valuation.
The due diligence part of a sale process is one of the key parts for the buyer as they will want to fully understand how the business of your care home is run. This means there is a vast amount of information that is going to be requested from you, but this should not be an issue if you have invested time in gathering this information in advance. Pulling together the documents a buyer is going to likely want to see in advance not only streamlines the process, it also means your heart won’t sink a little every time your lawyer asks “and do you have a copy of that?”.
Whilst the buyer will likely raise enquiries specific to your business, there is a certain amount of information that we can anticipate they will always want to see and therefore provide you with a list of this at the outset so you can start to collate the relevant supporting documents. Some examples of core documents always requested are copies of accounts, property title documents, resident contracts and contracts with the local authority (if any), historical occupancy levels, other key contracts (i.e. with suppliers), employment records, reports and inspections carried out, health and safety documents, and details of the assets relevant to the business.
Due diligence can be a very lengthy and time consuming process, and it is often forgotten that you still have to run the business whilst going through a transaction like this. Therefore early preparation is key to avoiding delays and being able to keep on top of the transaction.
One key part of the sale of a care home is registration with the Care Quality Commission (CQC); the buyer will not be able to acquire and operate the business unless it is CQC registered. Whilst registration of the buyer entity on an asset sale will be the responsibility of the buyer, any seller should keep this in mind as a step in the transaction. If the buyer is not already registered with the CQC, consideration will need to be given as to whether the transaction should be split into two steps, first the exchange of contracts, and secondly legal completion once registration has been obtained. Whether a split exchange and completion is suitable will come down to the individual transaction.
Where a sale is structured as an asset sale, consideration will need to be given to the employees. On completion of an asset sale, the employees in the business will automatically transfer to the new buyer under The Transfer of Undertakings (Protection of Employment) Regulations 2006, otherwise known as TUPE.
As a seller, there are various legal obligations around informing and consulting affected staff in respect of a proposed TUPE transfer. Failures to properly adhere to these obligations can result in liabilities for the seller. It is therefore important to ensure the consultations are carried out correctly. With the correct advice and support of an experienced legal team, the process should not be too challenging.
On a share sale, the position with the employees is much more straightforward as the employees remain engaged by the trading company.
As mentioned above, the employees are a key asset of the business. A prudent buyer will therefore want to ensure that all the staff are on appropriate contracts, in particular any key staff such as the registered manager and nominated individual. When contemplating a sale, you should consider the position with the employees and how this may have an impact on the sale.
The above are just a few points to keep in mind when you are in the early stages of considering whether to sell your business, and what you want to achieve out of the sale.
If you are planning to sell a care home, or thinking of buying one, then the healthcare team here at Howes Percival can help and support you through the process. If you would like to find out more or discuss your plans on a highly confidential and no obligation basis, please contact Oliver Pritchard at [javascript protected email address] or Helaina Mann at [javascript protected email address].
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