A debate in the UK’s House of Lords saw peers raise concerns over private equity ‘profiteering’, following a report by the Observer last December revealing that investments by private equity firms in children’s care homes in England have doubled since 2018.
The report in question analysed Ofsted and Companies House data, finding that 863 registered care homes providing care for vulnerable children in March 2023 were fully or partially controlled by investment companies, including private equity, venture capital and foreign funds.
The report, citing industry experts, attributed the growth of private investment — notably by Three Hills Capital Partners, Keys Group, G Square Healthcare Private Equity and the Qatari-backed Senad Group — in the sector to a growing demand for children’s care, particularly those with complex needs.
Stewart Wood, a Member of the UK’s House of Lords and Labour Life Peer, whose earlier contribution prompted the debate, said: “Private equity providers are making high profits in the sector, increasing their margins, carrying large levels of debt, yet expanding their share of the care market at the same time, while increasing numbers of councils are facing crisis or even bankruptcy.”
Baroness Diana Barran, a Conservative Life Peer and former Investment Banker who founded her own hedge fund in 1993, spoke of planned regulation in response to the Observer report: “We will introduce a new market oversight regime that will increase transparency on debt structures and profitability.”
Prem Nath Sikka, another Labour Life Peer, called for an investigation into private equity firms’ roles in healthcare, saying: “Private equity has already devoured care homes such as Southern Cross and Four Seasons, which actually had more subsidiaries than General Motors. Profiteering, asset stripping and tax avoidance are the basic business model in private equity.”
Set up in 1996 and once Britain’s largest care home group, Southern Cross Healthcare was acquired in 2002 as part of a £80m management buyout by West Private Equity — at the time, its first in the healthcare sector.
Two years later, the group was sold in an all-cash £162m deal to Blackstone Capital Partners IV, a fund belonging to private equity giant Blackstone, whose subsequent acquisition of care home group Nursing Home Properties, which owned the leases to many of Southern Cross’ homes, for £564m the same year prompted a competition investigation by the now-defunct UK watchdog, the Office of Fair Trading.
In 2006, Blackstone sold NHP for £1.1bn to a Qatari-backed fund. The firm sold its remaining stake in Southern Cross in 2007, having floated the business the previous year. In 2011, Southern Cross collapsed, following a failed £43m loan repayment on the back of the 2008 financial crisis.
Four Seasons Health Care, meanwhile, has avoided total collapse but has experienced a spate of financial troubles as including a failed £26m debt repayment in 2017, going into administration in 2019 and takeovers or closures of more than 320 of its homes.