Who Owns Care Homes?
Care Homes in the UK are increasingly being controlled by private equity businesses, as witnessed by the acquisition of Four Seasons Health Care by Terra Firma, a private equity group which agreed to a £825m takeover. Four Seasons had debts which totaled £1.6bn in 2009. The Royal Bank of Scotland took a 40% stake in the company in return for nearly halving its debt. (BBC 2012)
Acting on behalf of pension funds, insurance companies, and rich clients, private equity groups manage companies on behalf of their investors.
Why should nurses, patients’ relatives, and the taxpayer be concerned by such developments? After all, the world of high finance does not claim the interest of many, as it is seen as the prerogative of highly educated ‘city types’ who can grasp its perplexing intricacies.
Firstly, then, allow me to put in simple terms what it is that private equity businesses do:
They acquire a controlling interest in companies with a large proportion of debt relative to equity. The acquisition is leveraged, that is, it is financed by borrowing money against the acquired company’s assets and future stock market performance.
The aim is to increase the stock market value of the company by hoping the market reacts positively to changes in management, which are often accompanied by bullish statements about future performances. When Terra Firma acquired EMI in 2007, it issued statements about its troubled past and better future: EMI lacked “business discipline”, and wise investors would appreciate “the significant potential for transforming the business”. Compare this with this statement by Peter Calveley, CEO of ‘Four Seasons’, “We have now got in place a stable long-term capital structure that means we have got confidence in our position”. (Guardian 2012). This came after ‘Four Seasons’ was acquired by Terra Firma in a £825m. deal underwritten by Barclays and Goldman Sachs. £700m was in the form of loans, and the balance of £125m was raised from investors. In the ‘Four Seasons’ example, if its stock market value increased to £1bn., the return to investors will be £1bn. – £700m., that is, £300m., representing a return on investment of 140%.
This form of speculative business model depends on rising stock markets to enable selling on at a higher valuation – such businesses only buy to sell on. When stock markets are in decline, the exit strategy becomes problematic.
This business model differs from venture capital partnerships that usually invest in start-ups, and do not take a controlling interest in the acquired company. The speculative model distributes cash generated by the acquired company to investors on a contractual basis, that is, they do not act like the majority of companies, which pay discretionary dividends. The speculators also charge a per annum management fee, usually of between 2-3%. They can also claim a share of profits when the company is sold; in the above example, this could be as much as 20% of the £300m ‘profit’.
This business model relies on the availability of cheap and ‘flexible’ borrowing, with interest paid flexibly during the term of the loan. Banks securitize their lending, so that it does not appear on their balance sheet, which increases their ability to lend more. Loans can be on very ‘easy’ terms, often with clauses that allow default on repayment at least once without incurring penalty.
It is a vast commission generating merry-go-round in which the elderly have become a commodity.
What’s more, it is speculation that cannot fail; consider the case of Southern Cross, which the private equity firm Blackstone bought for £162million in 2004, selling it three years later at considerable profit, which it achieved by selling off the company’s homes (45 to ‘Four Seasons’), and forcing Southern Cross to lease the properties back. This arrangement contributed to Southern Cross going into administration, with the government immediately pledging to use public money to ensure affected homes would stay open, amid warnings that moving vulnerable patients might lead to their deaths. It is like going into a bookmakers and placing a bet than cannot lose; the tax payer will return all losing stakes. ‘Four Seasons’ eventually acquired (by debt finance) 140 care homes from Southern Cross.
The private equity model (scam) borrows at high levels using the asset they’re seeking to acquire as collateral on the debt; indebt the company further on the promise of ‘performance improvements,’ pay off their major creditors, and relying on the tax payer to pick up the bill. In the case of ‘Four Seasons’, this increased indebtedness is underway. They are acquiring 17 care homes from Optimum Care, which operated under the Avery banner, owned by Graphite Capital, another private equity investor (healthinvestor.co.uk, 11 April, 2013).
Investment banking revenues increase from underwriting private equity debt finance and charging fees for setting up deals, but the mechanics of these deals can easily collapse. As private equity partners face debt repayment deadlines they may need to sell parts of their investment, or seek re-financing deals at higher cost to finance existing debt.
What of the quality of care provided under the aegis of such companies. Helga Pile, Unison national officer for social services, said: “Private Equity takeovers are noted for looking at ways of maximising profits. The elderly care sector by contrast is woefully underfunded and cannot afford to lower the quality of care by cutting staff or depressing the training and wages of people who work in it.” (BBC 2012). Regarding the training and wages of workers, Peter Calveley lamented that ‘Four Seasons’ needed to recruit “several hundred” nurses from elsewhere in the EU, principally Spain, Portugal and Romania (Guardian 2012).
They are mainly what are described as PRN nurses, that is, qualified nurses currently undergoing NMC registration, who can be employed as nurses, but who will start off as senior nursing assistants or senior carers while waiting for their registration to be completed. These nurses need to apply for an accession card which ties them to their employer. Romanian and Bulgarian immigrant workers might be unwanted by the British public, but they are in high demand from British employers, with almost 48,000 UK jobs offered on a careers website in Romania last year. Recruitment agent Brindusa Deac, of Tjobs, Romanias largest foreign jobs website, said: “I don’t think an employer in Britain minds what nationality they employ, they want the best candidate for the cheapest wage legally possible. And Romanians will probably earn less than a Briton in the same position. Around 40% of the jobs offered on the website are for healthcare staff, most for elderly careworkers for both private and state-run care homes. The government has confirmed it will not seek to extend temporary curbs on 29 million Romanian and Bulgarian nationals’ right to live and work in Britain, which are due to expire in December.” (Huffington Post 2013).
Many of these workers are offered accommodation by their employee, often within or attached to the place of work, for which they are charged, and are on-call at all times, with nurses often being asked to cover for ill carers. “These are hard working reliable individuals looking for work as a carer, they may not have care experience but will undergo the normal 2-5 days training as required by care home providers. While these positions are mainly live out, employers who do not have staff accommodation are expected to help migrant staff to find suitable cheap rooms in the local area and possibly cover the first few weeks rent for them until they start getting paid.” (easterneuropeans.co.uk 2013). Yet the CQC requirement in the England, is for a course based upon Skills For Care. Yet the CQC requirement in England is for a course based on Skills For Care. The duration of this course and its exact content is not specified, and it is assessed by the registered manager of the establishment.
It is within this business model that: “UNISON has reached a landmark recognition agreement with Four Seasons Health Care along with the GMB and the Royal College of Nursing” (unison.org.uk). Perhaps this statement by the RCN may summarise what use the unions can be to ‘Four Seasons’ – “we can help you to achieve your business objectives”. Surely a role of any Union is to support members when raising issues of patient care in addition to supporting demands for greater pay and conditions – which would fly against the business objectives actually.
Why does it not matter that newly qualified UK nurses are not being recruited in sufficient numbers into the private care home sector? The answer: because they will never be able to compete in terms of cost and ‘flexibility’ with EU nationals, and this is a portent of what will become the guiding principle of all areas of nursing within the UK. Nurses face the same prospect as call centre workers, whose jobs went to areas of low labour cost.
Nurses, like Boxer, the workhorse in George Orwell’s Animal Farm, described as the farm’s most dedicated and loyal labourer, are being sent to the knackers’ yard in a van owned by private equity firms and driven by unions. The £15bn care-for-the-elderly market is expected to grow at 3.1% a year for the next 10 years. Everyone wants to be a part of it.