Insights

What I look for in a care business

 

Pinesh Mehta is an investor in BGF’s Manchester team. He has invested in businesses such as nursery group Kids Planet and A Wilderness Way, which provides residential care for vulnerable children. Here’s what he looks for when investing in the care sector.

1. Consistently good care

If a business provides a consistently good quality of care – and, crucially, it maintains that quality as it expands – everything else follows. We measure care quality using ratings from external inspectors – Ofsted for children and the Care Quality Commission for adults – as well as internal data such as the serious incidents log. No matter how profitable, we won’t invest in a care business if it doesn’t provide a high enough standard of care.

2. Happy, motivated staff

Retaining staff is a formidable challenge in an industry where roughly three in ten care workers leave their jobs each year. In the wake of the coronavirus pandemic, many workers are suffering from burnout, competition from other employers is high, and Brexit has made it harder to recruit from the European Union. Successful companies offer apprenticeship schemes, career progression and incremental pay rises to ensure hard-working care staff are rewarded.

3. Clients value the service

The need for care is rising due to the ageing population and the impact of the pandemic. Yet the quality of care across the industry is mixed and there is a good deal of regional variation in terms of supply and demand. To identify excellent businesses with a reliable pipeline of future clients, we look for high occupancy rates as well as using average weekly fees as a benchmark.

4. A growth-focused team

We want to back ambitious businesses with exciting growth plans, but the management team must have the skills needed to turn ambitions into reality. We look for individuals with a track record of acquiring, developing and integrating new sites into the business. We also pay attention to how the core estate has performed over time, as this is a good indicator of how future sites will perform.

5. Regional clustering

Operations at a care business can swiftly become unmanageable if the business is spread over too wide an area. We look for a growth plan focused on geographic clusters; that way, regional managers can oversee operations at several sites without having to travel hundreds of miles. Clustering is easier to achieve if the business pursues a blended strategy – building up new sites from scratch as well as acquiring existing ones.

6. Ability to achieve scale

BGF predicts consolidation in the care industry, in which roughly three-quarters of care homes are run by single-site operators, according to EY-Parthenon. Acquiring sites is the quickest way to grow, whereas developing new sites can provide a bigger boost to the overall value of the business (but takes longer – two to three years for a new site to reach maturity, on average). If done well, more scale equals a higher enterprise multiple and a more valuable business.

 

Clare Roberts of Kids Planet with Pinesh Mehta, BGF

Which BGF investments are a great example of the kind of businesses you look for?

When we first invested in 2016, nursery group Kids Planet had 17 sites. Now they have more than 80. Led by CEO Clare Roberts (above, right) the team has achieved this growth because they have an efficient system for integrating new sites into the business and, crucially, they have maintained their high standards of care while growing.

A Wilderness Way is a different type of business: a residential care provider for vulnerable children that provides outdoor activites such as horse riding (below). You can tell they are doing a great job because they are heavily oversubscribed. They have about 30 beds but get an average of 200 referrals a week from local authorities.

Looking ahead, are there any sectors you are excited about investing in?

High acuity services, such as those for vulnerable children or adults with learning difficulties, is an area where demand continues to outstrip supply, especially for operators that provide a high quality of care. As well as offering a potential return, backing these types of businesses is clearly a good thing from a society perspective.

Parts of this article appeared in ‘How to make yourself an attractive proposition to investors’, which was published in The Carer, September 2021 (page 58)

Investor profile

Job title: Investor

How long at BGF: 6 years

Which office are you based in: Manchester

Work prior to BGF: KPMG Corporate Finance

Board positions: Kids Planet, ROI Media and Gaist

Interests/hobbies outside of work: Trying to keep fit by playing football and swimming

BGF Insights 10.08.2021
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