Buying or selling a care home business is a complex process. It involves understanding numerous intricacies that come with owning and operating a care home. We recently acted for clients who were selling one of their care homes to a new entrant to the care home market.
In preparation for the sale, the sellers had undergone a reorganisation which involved putting their care homes into a new group structure with each care home ringfenced into a separate subsidiary with its own holding company. All of the business and assets and employees relating to each care home had to be transferred into each relevant subsidiary. As the care home owner and provider, the subsidiary needed to be registered with the Care Quality
We were instructed on the sale of the holding company of one of the subsidiaries.
Due diligence demands
We guided the sellers on dealing with the buyer’s due diligence requests relating to (amongst other things):
- the various steps of the reorganisation and the transfer of the care home, business and assets and employees into the subsidiary company, including what liabilities had transferred with the care home into the subsidiary.
- the property
- the residents’ contracts
- contracts with local authorities and other commissioners
- the registration of the care home
- regulatory and inspection issues
- any investigations in relation to other compliance matters, such as, hard wire/mains electrical installations, portable appliance testing, gas boilers, water heater(s) and other gas appliances
- employees, issues with the minimum wage, the living wage, calculation of holiday pay
- any claims made against the subsidiary and the care home prior to its transfer into the subsidiary, whether by local authorities, residents or their families, or by employees
Warranties and Indemnities
We then negotiated the share purchase agreement. The sellers were expected to give warranties and indemnities which would serve as a retrospective price adjustment if the warranties were not true and accurate or were misleading or liability crystallised under an indemnity.
To limit the sellers’ liability to the buyer under the warranties and indemnities, we negotiated limitation of liability provisions including limiting the period in which the buyer could bring claims and the amounts which the buyer could claim from the sellers.
We further limited the sellers’ liability by drafting a disclosure letter to qualify the warranties. We guided the sellers to ensure that the disclosures met the standard of fair and accurate disclosures.
The buyer was purchasing with bank funding. As well as dealing with the buyer’s requirements, the sellers also had to satisfy the requirements of the buyer’s funder. The funder’s requirements are to ensure the strength and covenant of the funder’s security. There were therefore matters that the buyer and sellers were willing to take a view on, but unacceptable to the funder’s lawyers. The sellers had to have good financial management information that the funder could rely on for its funding.
As a new entrant to the care home market, the buyer was also keen to ensure post completion support from the sellers. Appropriate provisions for the support were negotiated and included in the share purchase agreement. The sale and purchase completed to all parties’ satisfaction. Be prepared for what the process entails.
It was important that the right team was built around the buyer and sellers. Advisers who understand the particular nuances of health and social care and the sale and purchase process should bring simplicity to an otherwise complex process.
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