Domestic and global private equity investors had supercharged the company’s growth, betting that the rising needs of aging Britons would yield big returns.
Within weeks, the Four Seasons brand may be finished.
Christie & Co., a commercial real estate broker, splashed a summer sale across its website that signaled the demise: The last 111 Four Seasons facilities in England, Scotland, and Jersey were on the market. Already sold were its 29 homes in Northern Ireland.
Four Seasons collapsed after years of private equity investors rolling in one after another to buy its business, sell its real estate, and at times wrest multimillion-dollar profits through complex debt schemes – until the last big equity fund, Terra Firma, which in 2012 paid about $1.3 billion for the company, was caught short.
In a country where government health care is a right, the Four Seasons story exemplifies the high-stakes rise – and, ultimately, fall – of private equity investment in health and social services. Hanging over society’s most vulnerable patients, these heavily leveraged deals failed to account for the cost of their care. Private equity firms are known for making a profit on quick-turnaround investments.
“People often say: ‘Why have American investors, as well as professional investors here and in other countries, poured so much into this sector?’ I think they were dazzled by the potential of the demographics,” said Nick Hood, an analyst at Opus Restructuring & Insolvency in London, which advises care homes – the British equivalent of U.S. nursing homes or assisted living facilities. They “saw the baby boomers aging and thought there would be infinite demands.”
What they missed, Mr. Hood said, “was that about half of all the residents in U.K. homes are funded by the government in one way or another. They aren’t private pay – and they’ve got no money.”
Residents as ‘revenue streams’
As in the United States, long-term care homes in Britain serve a mixed market of public- and private-pay residents, and those whose balance sheets rest heavily on government payments are stressed even in better economic times. Andrew Dobbie, a community officer for Unison, a union that represents care home workers, said private equity investors often see homes like Four Seasons as having “two revenue streams, the properties themselves and the residents,” with efficiencies to exploit.
But investors don’t always understand what caregivers do, he said, or that older residents require more time than spreadsheets have calculated. “That’s a problem when you are looking at operating care homes,” Mr. Dobbie said. “Care workers need to have soft skills to work with a vulnerable group of people. It’s not the same skills as stocking shelves in a supermarket.”
A recent study, funded in part by Unison and conducted by University of Surrey researchers, found big changes in the quality of care after private equity investments. More than a dozen staff members, who weren’t identified by name or facility, said companies were “cutting corners” to curb costs because their priority was profit. Staffers said “these changes meant residents sometimes went without the appropriate care, timely medication or sufficient sanitary supplies.”
In August, the House of Commons received a sobering account: The number of adults 65 and older who will need care is speedily rising, estimated to go from 3.5 million in 2018 to 5.2 million in 2038. Yet workers at care homes are among the lowest paid in health care.
“The covid-19 pandemic shone a light on the adult social care sector,” according to the parliamentary report, which noted that “many frustrated and burnt out care workers left” for better-paying jobs. The report’s advice in a year of soaring inflation and energy costs? The government should add “at least £7 billion a year” – more than $8 billion – or risk deterioration of care.
Britain’s care homes are separate from the much-lauded National Health Service, funded by the government. Care homes rely on support from local authorities, akin to counties in the United States. But they have seen a sharp drop in funding from the British government, which cut a third of its payments in the past decade. When the pandemic hit, the differences were apparent: Care home workers were not afforded masks, gloves, or gowns to shield them from the deadly virus.
Years ago, care homes were largely run by families or local entities. In the 1990s, the government promoted privatization, triggering investments and consolidations. Today, private equity firms own three of the country’s five biggest care home providers.
Chris Thomas, a research fellow at the Institute for Public Policy Research, said investors benefited from scant financial oversight. “The accounting practices are horrendously complicated and meant to be complicated,” he said. Local authorities try “to regulate more, but they don’t have the expertise.”