HBI Deals+Insights / M&A/IPOs

UK homecare braced for “failures and consolidation”

Councils have begun removing emergency funding from the homecare sector as the COVID-19 crisis enters a new phase in social care. HBI interviews the UK Homecare Association (UKHCA) and CEO of provider City and County Healthcare about the sector’s future.

Before the crisis hit, the Local Government Association (LGA), the Association of Directors for Adult Social Services (ADASS) and the Care Provider Alliance decided on measures to protect provider cash flow which likely avoided any major market failures, according to the UKHCA.

These included councils paying for care in advance instead of in arrears. It also meant councils bought care ‘on plan’ rather than paying for what was actually needed, which avoided providers being too affected by the drop in demand which occurred at the start of the pandemic.

“But have we just delayed market failures for a few months?” asks the UKHCA’s director of policy and campaigns, Colin Angel. “The emergency funding which councils received for all of social care is running out and some are already reverting back to how things were run pre-COVID. The costs of PPE and staffing have not gone away and will be with the sector for months, if not a year or more.”

But James Thorburn, CEO of City & County Healthcare, one of the country’s largest providers by volumes and revenue, expects “only moderate revenue losses in the market, providing the government and local authorities continue to support the industry with enhanced funding for SSP (statutory sick pay) and PPE costs going forward.”

Such help is far from guaranteed, however. The government has yet to make any commitments to fund increased costs and adequate funding for the sector as a whole has yet to be put in place. Though with social care in the spotlight, options such as a dedicated tax are now being discussed. This would come as a relief to the sector which has waited years for a green paper and struggled with pressures such as rising living wages and recruitment uncertainty due to Brexit.

In the meantime, the sector faces “a variable picture of provider failure,” according to Angel. “This will depend on what councils decide to do in the next few months. Typically, we’d expect this to happen first in the North of England, where rates are already at rock-bottom.”

In light of this, “we are likely to see more integration and consolidation of the market” says Thorburn, as companies may well look for buyers in the next few months in order to avoid going under. Increasing geographical spread, volumes and company size would act as a natural buffer for many businesses that have struggled to weather the storm.

“We had some natural advantages being quite a large professional business with procurement capabilities. We acquired around £4m worth of PPE in first two months of COVID and we still have a lot of that stock which has stood us in good stead.

“I imagine it’s much harder for a small provider and clearly we have the financial scale and resilience and the cash flows to be able to lay out that sum of money.

“This has been a hugely fragmented market, and a slightly more consolidated one would be helpful because of the levels of investment needed in technology, risk management and infrastructure in order to deal with social care as part of the overall public health system,” he adds.

City & County Healthcare was looking for a buyer before COVID-19 hit the sector, though we are told the search was “far from their minds” during the crisis. It was also a market consolidator in the run up to its possible sale and could well be a player in the continuing integration of the UK homecare space.

We would welcome your thoughts on this story. Email your views to Anaïs Charles or call 0207 183 3779.