Top tips for selling a care home

In this article, we explain our top tips for selling a care home business.

Selling your care home will require the involvement of specialist advisors such as accountants, brokers and solicitors. Your team of advisors will ensure that you are receiving the best advice, that the process runs as smoothly as possible and give you the ability to continue running the business until it is sold.

We understand that operating a care home involves a number of legal and regulatory considerations and that these need to be managed before and during the sale process. In particular, we know that both sellers and buyers want a seamless transition, where possible.

There is plenty to consider when preparing to sell your care home and we hope our tips below will provide you with some insight.

1. Choose the right deal structure

You will need to decide how you wish to structure your proposed sale. You may need to negotiate this with the proposed buyer. Usually, you will either be selling the care home’s assets and goodwill (known as an ‘asset sale’) or the shares in a limited company (known as a ‘share sale’). If the care home is operated via a limited company, a seller will generally seek to structure the deal as a share sale as this involves the buyer acquiring the entire business entity and all the assets and liabilities that come with it. There are also potential tax advantages of structuring the sale in this way. However, there may be reasons why a buyer is not prepared to acquire the business as a share sale and requires an asset sale.

We have put together an article setting out the difference between a Share and Asset sale. Read more here.

2. Due diligence

Once the basis terms for the sale are agreed via the ‘Heads of Terms’, one of the first things the buyer’s advisors will do is send an extensive set of due diligence questionnaires. Dealing with these enquiries is a time-consuming exercise, and will involve you having to answer very detailed questions about the care home. You will also need to disclose any documentation to support the buyer’s due diligence process.

The information to be disclosed to the buyer will include business contracts, employee records, proof of registration of practising professions, indemnity insurance documents, ownership and maintenance information , stock lists, supplier contracts and more.

If you own the commercial property from which the care home trades from, you will need to decide whether the property is included as part of the sale or if you wish to retain ownership of the property and lease it to the buyer post-sale.

If your care home rents the building from a third-party landlord, the buyer will need to know about the remaining lease term and whether the lease is “protected” or not. If the buyer may require a new lease or an extension to the existing lease, which should be considered from the outset.

3. Accounting and finances

You should liaise with your accountant about your intention to sell your care home as soon as possible. It is important to start reviewing your accounting, tax and financial information as soon as possible and ensuring that good quality information, including reliable management accounts, are put together.

The buyer may be funding its acquisition using bank or investment funding. The lender or investor will undertake their own due diligence on your care home and will want to test the cash and profit levels of the business.

4. Consider the Care Quality Commission (CQC) requirements

All care homes are required to be registered with CQC. It is a requirement of the buyer to notify CQC of any changes to the CQC registration, including the registered manager and/or nominated individual. This can be a stressful part of the transaction process, with the difficulty in predicting what CQC may or may not ask for.

It is important to consider that the CQC can take up to 10 weeks to process any application to change the nominated individual and/or registered manager, so it is important to ensure you factor this into your transaction timeline and begin any applications as promptly as possible. It is also important to factor these timescales into the transaction when negotiating with the buyer.

The registration process will be much simpler if you are selling your care home to an experienced and existing provider. However, if you are selling to a new entrant in the market, the buyer will have to make the necessary applications needed to register a new registered provider, registered provider and nominated individual (as applicable) and this may involve more scrutiny.

We are familiar with negotiating workable solutions to the CQC transitional requirements and can advise on the best way forward for you. We will factor the CQC registration requirements into the transaction planning stage, and check-in with you about this throughout your transaction. As part of this, we will discuss with you any desired handover arrangements to help with the smooth transaction following completion of your sale or purchase.

5. Confidentiality agreements

 It is important to remember that you will be providing sensitive personal data about associates, employees and residents . It is imperative to process this personal data with care and in accordance with data protection laws. We recommend a confidentiality agreement (or non-disclosure agreement) is put in place with the buyer at an early stage. In addition, personal data can be supplied in an anonymised format to prevent the misuse of the information by the buyer.

6. Seek legal advice at an early stage

Involving a specialist corporate solicitor – such as us – at an early stage of the transaction will be beneficial if you are proposing to sell your care home. We are used to negotiating the common issues that tend to arise and are well versed with the processes involving CQC. We  will look to negotiate terms which are fair and usual in care home sales.

We can advise you if anything the buyer suggests is unusual or unfair to you. This will help you make a well-planned and informed decision before committing to the main legal phase of the sale, and incurring legal costs which could have been avoided by taking advice at an earlier stage.