It could be your local Pizza Express, the home caring for a cherished relative, your favourite supermarket, even the sports tournaments you love.

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The following article discusses issues with regards to private equity ownership of care homes:


First, private equity holds us to ransom. Now it wants us to bail out its losses

Will Hutton

The Observor Sun 23 Aug 2020 08.15 BST Last modified on Sun 23 Aug 2020 17.11 BST

It could be your local Pizza Express, the home caring for a cherished relative, your favourite supermarket, even the sports tournaments you love. They are all ventures owned not by their founders or a company quoted on a public stock exchange. They are in the hands of a new class of invisible investors who mortgage companies for self-enrichment, rather as homebuyers mortgage themselves to buy homes.

But while homebuyers hope for a general rise in house prices to increase the value of their initial equity, the invisibles do everything in their power to make the mortgaged company look super-profitable – and then sell it on for a handsome return.

This “mortgage the company and flip it” industry is called private equity and it has become the fastest growing, richest and most influential business in the UK, in turn the centre of European private equity. But last week, we learned, courtesy of the Financial Times, that the foundational privacy it so prizes and that has allowed, via tax havens, excessive remuneration and freedom from employee and shareholder accountability, some of its leaders to become the wealthiest on the planet, has risks it does not like.

Its excessive debts, once the route to fortunes and, it would say, “business discipline”, are crushing it. On top, the commercial property market no longer looks a one-way bet. It wants its vast mortgage debt guaranteed by the government, even though the interest charges drive the underlying companies into operating losses. Otherwise they will lay off hundreds of thousands of people to save their own skins.

Fearing an unemployment crisis this autumn, it seems the government will buckle. It is looking at ways around EU rules that forbid such intervention. Indeed, the Brexit negotiations are partly stalled over the issue. Britain wants the freedom, post-Brexit, to bankroll private equity billionaires. The EU is insisting that if Britain wants a trade deal, it had better continue respecting its rules on state aid. The talks are deadlocked.

For private equity has emerged as not just a British but a pan-European phenomenon, of which increasingly hard questions are being asked, especially in the wake of the coronavirus. So the death of Zoilo Patiño, an 84-year-old with Alzheimer’s, of Covid-19 in a Madrid care home owned by the government became a national talking point in Spain in March. His body was found 24 hours after his death in a locked room, even as the elderly were being “abandoned, if not dead, on their beds”, as one Spanish minister said.

The subsequent investigation into the management company – DomusVi, which had been contracted to operate the home – showed it had been stripped down to a “fast-food version” of healthcare by years of cuts: there was only one care worker for every 10 residents, with not even the PPE to help cope with a dead body. But DomusVi, Spain’s largest care home company, is owned by the British private equity company ICG, which refinanced €1bn (£900m) of debt when it bought it from a French private equity firm in 2017. Of course, EU negotiators are interested in how Britain treats private equity and its debts: it is a pan-European business – and can be a matter of life and death.

For the care home sector is beloved across Europe by private equity magnates. It has two attributes that attract them. First, it is a business with lots of mortgageable property, so the private equity firms can borrow billions to buy the underlying companies, securing the loans on the companies’ own assets. Second, care homes have regular, predictable cash revenues that allow them to service the resulting debt offsetting it against tax. So the investors in the private equity company can put up just tens of millions of their own money at risk (equity) and then borrow hundreds of millions, even billions, to buy companies that will service their debt. Strip out all extraneous costs (and often more), sell the care home company on and, hey presto, you’re a multimillionaire.


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