They Don’t Care – How Financial Investors Extract Profits from Care Homes

A Study on Private Equity Investments in Care Homes in France, Germany and the UK

When looking at the sometimes detrimental effects of finance on the real economy, we cannot shy away from dealing with private equity funds. In a recent study, we have therefore analyzed the toolbox of these specialized financial market actors in the care sector. Our report looks at the care sector and more specifically at the role that private equity firms have played in it, as part of the „financialisation” of this vital area of our societies. This focused approach, looking at cases in France, Germany and the UK, shows financialisation as it hap-pens in the real world. The care sector seems to be the perfect investment target for private equity firms, and the investors they serve. Demand for care has grown rapidly and will continue to grow in response to ageing populations. It provides reliable income streams through public insurance schemes and taxpayer money. Care home chains’ real estate is an attractive asset for investors that can be re-packaged and sold to other investors.

Our report documents the growing activities of private equity firms in the three countries, and the problematic outcomes as private equity actors buy up care home groups and re-engineer them for profit. We looked at the largest private-equity owned care home groups and in all cases we found that private equity firms used a similar toolbox to reap profits:

• Private equity owners put little of their own money at risk, instead using a) „other people’s money” supplied by co-investors such as pension funds, and b) using unusually large amounts of debt to magnify their investments. Large parts of this debt is pushed down on the acquired companies, threatening the long-term viability of the care home group.
• Care home groups are often forced to serve “shareholder loans” with high interest rates. In some cases, this has contributed to care home groups becoming technically insolvent, as we show for the collapse of Southern Cross in the UK.
• Private equity firms acquire care home real estate and re-engineer real es-tate holdings. In all cases studied, care home groups have been stripped of their real estate, and were forced to rent them back (sale-lease-back).
• In all cases, profits of care home groups were transferred to parent holdings in offshore financial centres such as Luxembourg or Jersey.

Project Modules

The project consists of four main modules, which will be covered from 2020 until 2022. After starting off with analyses of three scenarios for progressive policy change, our current work is focussed on the role of central banks, the disconnect of finance and the real economy as well as the role of economic growth for the transformation.