In this article, Rob Kinsman, regional director of care at Christie & Co, explains what a care home value is and how they are determined

Care homes, like most other businesses, are valued on a multiple of profit.

The two key elements to this calculation are the profit or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) and multiple (Years Purchase).

In assessing the profits that can be derived from a care home, buyers, investors, lenders, and valuers all look at the sustainable level of trade and there are many considerations that feed into this assessment.

Buyers and valuers will also apply a ‘price per bed’ as a rule of thumb to sense check the deal and ensure it is in line with market sentiment.

One of the challenges in valuing care homes is the huge variance in multiples being paid, and also the price per bed.

In 2024 alone, we have completed on care homes ranging from 5-12 multiple of profit and £30,000 to £360,000 per bed space.

This illustrates the importance of appointing the right advisor to ensure the business is positioned correctly in the market to maximise value.

Below are some of the key areas that are examined in determining both the level of sustainable profits and multiple applied in a deal.

Property

What is the capacity of your care home? How large are the bedrooms, and how many ensuites does it have?

Generally speaking, larger care homes offer greater economies of scale which has an impact on profit levels and therefore value.

The size of your care home will also determine the buyer profile and how they will fund their purchase.

That said, our recently published Care Market Review clearly demonstrates there is demand for all types and sizes of care home assets.

In the first half of 2024, 42% of our completions were care homes with less than 40 beds and there is an active buyer pool of new entrants seeking their first step into the sector.

Wetroom provision is a standard feature for new-builds and ensuite provision is a requirement for corporate buyers.

How large your client’s bedrooms are is also very important in determining value – larger bedrooms offer easier movement of staff and client handling as well as the opportunity to tap into the more lucrative private pay market.

Many corporate buyers will request the Gross Internal Area (GIA) per resident figure which provides an easy benchmark on the spatial standards of the property.

Also increasingly important is the energy efficiency of the property, as lenders and investors are beginning to scrutinise this as part of their ESG policies.

How many floors the care home operates over will impact staffing ratios and overall staff costs. Does the property have day space areas located on each floor?

All these factors feed into determining who the likely buyer profile is for your care home and therefore will impact the multiple you are likely to achieve for your business on exit.

Staffing

A key consideration for buyers across the spectrum is the management of the care home and the stability of the staffing team.

Does the care home have a registered manager, and how influential is the current owner in the business?

The more involvement an owner has, the greater their level of personal goodwill in the business, which might raise some queries from buyers on the stability of the trade under new ownership.

How much agency staff does the care home use, and is the business reliant on overseas staff via the sponsorship licence?

The ongoing staffing challenges have increased agency usage in many care homes which will be scrutinised by buyers to understand where the pinch points are with the staffing team and how they might go about eradicating agency under their stewardship.

Location

The location of care homes is becoming increasingly important for a number of reasons.

It is key for staffing resources.

Is the home located in a densely populated area with plenty of staff nearby? Is it on a major bus route?

The macro location plays a key part in determining the size of your buyer pool.

More central locations close to motorway networks open up the market to more buyers who would be able to absorb your home into their portfolio.

The micro-location is also key in terms of the current bed supply. Is there an undersupply of bed spaces, and what is the current pipeline of new build developments?

The other determining factor for location is the level of affluence.

Average house prices in the area are key in determining the size of the potential private pay market for your care home.

The Care Quality Commission (CQC)

Regulatory compliance is a key area of scrutiny for buyers and their lenders.

The value of a care home isn’t necessarily impacted if it has a ‘Requires Improvement’ rating, but sellers should be able to show a clear action plan for improvements in all the highlighted areas.

Given the current challenges with CQC, our clients are taking matters into their own hands and commissioning a mock inspection with a reputable firm to be able to demonstrate the improvements and compliance, which can then be relied upon by buyers and their lenders.

While the above looks like quite an extensive list, the valuation of care home businesses is very much an art, not a science!

While we have focused a lot of this article on what the majority of the market is looking for, we are aware that, in certain parts of the country, this is less the case, depending on the availability of homes in the area and specific demand.

Ultimately, the market will decide what a business is worth, and your agent should tailor a marketing strategy to maximise the value of your care home while working with you on your needs for confidentiality.