It has been a few months since it was announced that Justin Hutchens would leave HCP, Inc. and join UK-based HC-One as its new CEO. That transition is expected to take place on October 1, and he will certainly have his hands full when he takes over from Chai Patel.
HC-One just announced an agreement to acquire 122 senior care properties from Bupa Care Services, also based in the UK, for approximately £300 million, or $384 million. Over the past few months, the deal value was rumored to be in the £300 million to £450 million range, but that was for 150 properties, not the 122 that was agreed upon.
Before this acquisition, HC-One was already the third-largest senior care provider in the UK, and now it will be the largest, with more than 350 properties. If the UK is anything like the U.S, being the largest can come with its own set of headaches.
Back in 2014, a joint venture between Formation Capital and Safanad purchased a 273-property portfolio from The NHP Group that was operated by HC-One for £477 million, with a total financing of £394.5 million committed by HCP with a blended yield of 8.2% on its five-year term. At the then existing exchange rate, the purchase came to $60,900 per bed. In the current deal, Safanad and StepStone Real Estate provided the equity, with debt financing coming from Deutsche Bank and Apollo Global Management. It was rumored at the time of Hutchens’ departure from HCP that both HCP and Formation Capital were happy to have Hutchens at HC-One to, well, sort of protect their financial interests.
It turns out the UK nursing care business is suffering from some of the same pains that the U.S. sector has been experiencing. Payment rates from the National Health Service have not been keeping up with costs and in some cases have been cut. In addition, care facilities across the UK have been having a hard time dealing with increases in the minimum wage. Sound familiar? In addition, over the past few months there have been some local stories and television reports about alleged “institutional abuse” at some of the Bupa facilities, with hidden cameras and undercover employees. Apparently, the Care Quality Commission threatened to prosecute Bupa if it did not raise quality standards. It is hard to tell if this is more smoke than fire, but problems are more likely to occur the larger you become.
We have to assume that Justin Hutchens knew all of this when he signed on for the job, and we also have to assume that poor quality will not be tolerated under his watch. The problem is whether there are sufficient funds in the “system” to provide quality care, and how much Brexit will impact staffing issues. If there is one thing he has learned on this side of the pond, big is not always better. Now, he will be leading the largest senior care home company in the UK. If successful, maybe he will want to take on a bigger job….the CEO of Brookdale Senior Living, if they ever find a buyer.