Acquiring care businesses: the current legal challenges, comment from Hazel Phillips of RWKGoodman
When acquiring a care business in the current financial climate, the quality and speed of the legal process can make or break the transaction. There are a number of potential issues that a well-advised buyer can plan and prepare for ahead of time to mitigate the risk of delays and complications during the process.
TIMING AND COMMUNICATION
It is important to carefully plan the route to completion. Communication with sale-side is vital to keep everyone on-side whilst the early steps such as bank valuations are ticked off. It can be helpful to kick off with an all-parties or professionals call to set out a timeline.
If you start the legal process too far in advance of your finance coming online then work may have to be duplicated as information, including property searches, becomes outdated. Where a CQC application is required, timing is key as CQC no longer allow applications to hang around indefinitely and will require re-submission if a completion date is pushed out for several months.
IS EVERYONE ON THE SAME PAGE?
When making an offer, buyers should ensure they have as much information as they can about the proposed structure including where the property sits.
Tax and legal advice should be taken at an early stage. This is particularly key with a share purchase as if the property is held outside of the target company, SDLT at c.4% of the property price may be payable in addition to stamp duty on the shares at 0.5%.
Whilst no-one wants to spend a prolonged period negotiating heads of terms, it is useful to clarify key points at an early stage exclusivity, purchase price mechanism, apportionment of the price, seller liability thresholds and post-completion restrictions to avoid a lengthy debate later when tensions may be higher. Heads ensure each party’s accountants and tax advisors are on board with how the purchase price is calculated and adjusted. This is also the point to consider whether a personal guarantee or retention is required to protect the buyer in the event of a post-completion claim.
WHAT’S HOT IN DUE DILIGENCE?
On the employment side, the increasing use of overseas staff in the sector has resulted in a focus on immigration compliance. Failure to pay holiday pay correctly for overtime continues to be a problem and it remains prudent to check furlough rules were complied with as HMRC continue to investigate error and fraud from the pandemic. Read more about the importance of workforce due diligence when acquiring a care business here.
Fire remains, ahem, a “hot topic”. It is often the case that only an internal fire risk assessment has been undertaken (crazily, there is no legal requirement for anything more) which provides little comfort that expensive works won’t be required. Where this is the case, we recommend an external assessment is procured ahead of completion.
EYES ON THE GROUND
Legal and financial due diligence carried out by sector specialist advisors should provide you with a good feel for any issues. However, “eyes on the ground” are invaluable. Where possible, it is advisable to arrange to meet staff, view big ticket equipment such as lifts and consider carrying out a survey as this may pick up things that professional due diligence cannot.
Whilst it is reasonable for a seller to limit access due to concerns about confidentiality or public health, be wary if access is refused as our experience has shown that this means a seller has something to hide.
Our specialist Health and Social Care Team regularly advises providers of all categories on acquisitions and sales in the care sector. Please contact Hazel Phillips at hazel.phillips@rwkgoodman.com or 07776 241235
