Buying or Selling a Care Home through a Share Purchase

The care home industry has seen substantial growth over recent years. For investors and operators looking to buy or sell care homes, one option is through a share purchase. This involves buying the shares of a company that owns the care home, as opposed to just purchasing the care home assets. A share purchase comes with its own advantages, disadvantages and legal processes that need to be considered. 

What is a Share Purchase in the Care Home Sector?

A share purchase occurs when an investor buys the shares of a company that owns and/or operates a care home. When the shares are acquired, you take control of the company, warts and all. This will include the good things (property, contracts, and equipment) and the problems (including debts, employee disputes, taxes, and any legal issues).

This contrasts with an asset purchase, where the Buyer only acquires specific assets of the company, leaving behind liabilities and assets that are not required.

Key Advantages of a Share Purchase

• By acquiring the shares of a Company, the Buyer gains ownership of the entire care home business, including its contracts with local authorises, residents, and suppliers, making the transition streamlined.
• Continuity of business operations is generally easier, with no need to renegotiate agreements, as all contracts remain with the same legal entity (beware change of control).
• In England and Wales, care homes require licenses to operate, which is tied to the legal entity rather than the property. In a share purchase, the license remains in place, and there is no need to apply for a new one (see above).
• A share purchase may come with tax benefits, depending on the structure of the transaction. For example, in England and Wales at the time of writing, Business Asset Disposal Relief may be available which can reduce the tax burden for sellers.

Potential Disadvantages to Consider

• When you buy shares, you obtain both the assets and the liabilities of the care home business, including any unknown legal, tax or financial problems. This could involve issues such as unpaid tax, disputes with residents, or even historical compliance failures with regulatory bodies.
• The due diligence process in a share purchase can be complex and time consuming. The Buyer must scrutinise the company’s assets, financial history, liabilities, employee contracts, and any ongoing legal disputes.
• Financing a share purchase can sometimes be complicated as lenders may be more cautious about extending credit when the Buyer assumes the company’s entire financial and legal history.

The Legal Process of a Share Purchase

Embarking on a share purchase involves the following main steps:

1. Heads of Terms: Whilst not always necessary, this document outlines the basic terms of the agreement between the Buyer and the Seller, including the purchase price and other specified conditions.
2. Due Diligence: This is a comprehensive review of the care home’s financial and legal standing, compliance with regulations, staff contracts and historical performance to ensure the right price is paid. 
3. Share Purchase Agreement: The parties will negotiate and sign a Share Purchase Agreement which is a contract that sets out the final terms of the deal including:
   1. The price and payment terms
   2. Warranties and representations, which are promises made by the Seller about the state of the business
   3. Indemnities, where the Seller agrees to compensate the Buyer for any specific issues uncovered during the due diligence process
4. Regulatory Approvals: As care homes are highly regulated and a share purchase may require approval from relevant regulatory authorities such as the Care Quality Commission in England and Wales, any change in control must often be reported to and approved by these bodies.
5. Completion: Once all approvals are obtained and the purchase price is paid, the ownership of the care home’s shares is transferred to the Buyer. 

Essential Considerations for Buyers and Sellers

Before engaging in a share purchase, it is crucial to ask the right questions to avoid potential pitfalls:

1. Financial Due Diligence: 
   1. What is the financial health of the company? Review the profit and loss statements, balance sheets and cash flow reports to ensure the business is sustainable.
   2. Are there any outstanding debts or liabilities?
2. Legal and Regulatory Compliance 
   1. Has the care home complied with all regulatory requirements? Ensure that the care home has passed inspections and is in good standing.
3. Staff and Employment Contracts
   1. Are there any unresolved issues with employees? Check for any disputes, unpaid wages, or pension liabilities.
   2. Will any staff remain post sale? 
4. Property and Maintenance
   1. Is the care home property in good condition?
   2. What is the status of the care home, is it freehold or leasehold?
5. Resident Contracts
   1. Are there any disputes with residents or families?
   2. What is the current occupancy rate? 
   3. Are there opportunities for expansion or increased profitability?

How to Navigate a Successful Share Purchase Transaction

A share purchase in the care home sector can be a highly desirable option for both buyers and sellers. However, it is not without its risks, particularly surrounding liability for historic issues. By engaging the right legal experts and asking the key questions, we can assist you in navigating the complexities of such transactions. The Business Team at Birkett Long can help you to carefully weigh the advantages and disadvantages and ensure that the deal structure fits your overall business strategy and risk appetite.