Terra Firma steps into the care home sector with £825m deal

Private equity activity in the sector has been scrutinised since the failure of Southern Cross, a listed group previously owned by Blackstone, which collapsed last year.

Despite upheaval in the sector, elderly and specialist care provision needs are forecast to grow 3.1 per cent annually over the next 10 years as people live longer, Terra Firma said yesterday.

Most of this need will be met by independent services complementing the National Health Service, which is being overhauled by the coalition Government of Prime Minister David Cameron. Terra Firma believes Four Seasons could benefit from such long-term growth.

Michelle Mitchell, Age UK charity director-general, said: “Behind the Four Seasons price-tag headlines are 20,000 older people whose home is provided by Four Seasons and they, together with their families, need the worry of the last few months over the company’s future to be permanently lifted.

“No one should be allowed to enter the care home business without being able to show their business plan provides a stable future for residents of their homes.”

The deal is Terra Firma’s first foray into the healthcare sector, though it has made something of a speciality of buying companies with significant real estate holdings.

Terra Firma’s return to dealmaking follows a torrid period in which it lost control of EMI, wiping out a £1.7bn equity investment in the music group made at the peak of the leveraged buyout boom in 2007.

Four Seasons, which is 40 percent owned by Royal Bank of Scotland, had been looking to refinance some £780m of debt before a September repayment deadline.

The deal is expected to close on or before July 16, at which point its liabilities will be repaid in full.

Rival Southern Cross collapsed because it could not meet crippling rents on a largely leased estate. Four Seasons owns around 60 per cent of its care homes, thus limiting exposure to rental costs, Terra Firma said.

Terra Firma, the private equity group founded by Guy Hands, is expected to put in £300m of equity.

A spokesman for Terra Firma highlighted the fact that the “understandable concerns about Four Seasons’ ability to refinance its debts have gone away, which had to be good news”.