Care Sector - Investment considerations in light of Coronavirus

One of the initial priorities for care businesses, including investors, as we went into lockdown was to manage the unprecedented disruption with a focus on cash flow; either through utilisation of rolling (revolving) credit facilities, overdrafts or otherwise. The UK is now moving out of that first phase and investors are starting to think about what's next. This includes reviewing financial covenants and requesting resets if required, forecasting cash flow and considering how to achieve a return to usual working systems in a realistic and safe way.The key focus for ongoing and future investment will be the businesses with a history of resilience during a recession, together with those that are adaptable. For instance, 90% of GP consultations are being carried out by video - is this something that could continue in the future to take the pressure off GP services? The care sector may also look more seriously into frontline investment in robotics.One of the key problems facing the care sector in recent months has been the lack of collaboration between the public and private sector. COVID-19 has led to greater engagement between the sectors on this front. Where there have previously been barriers and resistance to the discharge of elderly people from hospitals, the NHS are now actively engaging with private operators to ensure patients are put in the right place at the right time. Let's hope that the trust being shown in the face of adversity is something that can continue post-lockdown and that recent events will remain in the forefront of everyone's minds so that the underinvestment in health and social care over the last few years will be pushed towards the top of the political agenda for the next decade and beyond.In terms of current investment into the care sector, many transactions in the initial phase of lockdown were “on-hold”: how do you carry out valuations and due diligence during this time? How can you obtain reliance letters when experts are caveating their advice due to the unknown impact of COVID-19 in the long term? Why would you sell your business today unless you had an immediate need to unlock capital? (See How is Coronavirus affecting Private M&A) for further details. Whilst private equity investors still have funds available to invest, it is usual for this to be invested alongside debt and, as there is no current debt market (banks are on pause or tied up with CBILS applications - see Government-backed Business Support FAQs), investment will be reduced. Over the last week or so, green-shoots for new deals are being seen as the sector (and its advisers) have implemented safe workarounds where possible.Once we start to emerge into what is being described as the “new normal” over the next 3 to 6 months, not only will investors be looking to those businesses that weathered the storm, took some initiative and perhaps diversified, but also will be looking to who acted equitably during the pandemic. Even then, it is not expected that the multiples that were being seen pre COVID-19 are likely to return whilst the pandemic continues to impact the economy (the full extent of which we will not understand for some time). We should also certainly expect some curveballs as people seize opportunities where others cannot yet see them.

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