Tuesday, 23 June 2009
Since my last commentary in May, we have noticed a significant number of new deals have been agreed by our clients on care homes. The activity level is more significant than over the last 6 months or so.
Looking at the details of the deals that are being agreed, I would suggest that this is because the homes that sales have been agreed on are more reasonably priced in terms of per bed and price multiples than in recent history. We are seeing businesses that are now looking to change hands within the 7 to 8 times profit multiple, rather than the ‘boom’ prices that were sought towards the back end of last year.
I think this is rather encouraging and perhaps reflects a new level of realism being quoted by selling agents when they are visiting prospective sellers and the subsequent expectations of vendors when they finally come to the market.
Another factor to consider in this new lower price environment is that the lenders are lending at lower loan to values across the board and this must be having a knock on effect on prices as purchasers can no longer gear themselves to higher levels to achieve larger profit multiple purchasers.
Indeed, as far as the lenders are concerned, we are still seeing a relatively risk adverse stance from the lenders in the market. The quoted top loan to value of 75% on a stand alone basis is very hard to achieve and has some very strict criteria attached to it. More realistic is a 65-70% funding position and many clients are starting to considering the benefits of having a lower debt position, this being increase profitability and cash flow.
Banks lending at lower loan to values can be a problem to some prudent operators who had manoeuvred themselves into a good position to take advantage of the well priced opportunities in the market right now. They are finding that their own Bank have taken a more risky approach to their own affairs and have no funds to lend or make it extremely difficult to borrow. In many instances, Banks are looking to enforce any broken covenant that they can to justify a rate increase or change in terms.
Of course, we still have lenders who are actively looking to lend within healthcare and as such, we have been able to help a large number of clients recently who are stuck in this tricky situation.