Nursing Home Transaction Trends
15 October 2020
Longer life expectancy and an aging demographic has given rise to a need for more later life accommodation and care options. Over the last few years the Irish nursing home sector has experienced extraordinary growth and consolidation. The sector is attracting interest and funding from a range of private equity, property investment vehicles, overseas investors and high-net-worth individuals. Based on our experience there are five key legal areas that should be considered before commencing a sale or acquisition of a nursing home business in Ireland.
Nursing home transactions often comprise the sale of both property and business assets. The legal process will involve:
- Executing heads of terms (which set out the key commercial terms of the transaction, including price, adjustment mechanism, inclusion or exclusion of restrictive covenants, etc) to include provisions dealing with confidentiality and exclusivity
- Completing due diligence on the seller, the business and the assets, including the property
- Negotiating the sale and purchase documentation
- Complying with regulatory and any other pre-conditions to the sale and purchase of the nursing home
- Funding arrangements
Where the business and assets of the nursing home are held exclusively within a private limited company, a share purchase agreement and a tax deed are the customary transaction documents.
Where the buyer wishes to pick and choose certain assets in the nursing home and leave other assets and liabilities behind, an asset purchase or business transfer agreement may be preferable.
Alternatively, the parties may agree to implement a pre-sale reorganisation. The seller “hives-out” selected assets and possibly some liabilities into a newly incorporated company whose shares are then acquired by the buyer under the terms of a share purchase agreement.
Where the property assets of the nursing home are being sold, it will be necessary to negotiate a separate suite of property contracts, including a contract for sale and deed of transfer. If the freehold property of the nursing home will be owned by a different entity to the one which will own and operate the business, a lease will typically be put in place between these entities simultaneously.
The most common structures we are seeing in recent nursing home transactions we have advised on are as follows:
- The seller transfers the freehold property where the nursing home is situated, to a third party investor. A separate operating company acquires the operating business of the nursing home by asset purchase agreement. A lease is put in place between the investor and the operating company
- The seller transfers the freehold property where the nursing home is situated, to a third party investor. The company, which operates the business of the nursing home, is acquired by share purchase agreement. A lease is put in place between the investor and the company which owns the operating business
- The seller retains the freehold property of the nursing home. A lease is entered into, with a put and call option separately agreed, under which the freehold property can be acquired at a later stage if set financial performance criteria of the nursing home is achieved. The business is operated by the tenant in the interim under a management agreement or lease
- The investor acquires the shares of the company which owns the nursing home business(es), and which also owns the freehold property where the nursing home is situated.
2. Notification and consent requirements
No party may operate a nursing home in Ireland unless the nursing home is registered with the Health Information and Quality Authority (HIQA) and that party is registered as the registered provider of the nursing home. Specific notification requirements to HIQA are triggered when there is a change in the ownership or management of a nursing home. When a notification is filed with HIQA, the National Treatment Purchase Fund (NTPF) and the Health Services Executive (HSE) are also required to be notified.
Depending on the nature of the nursing home business being acquired and the parties involved, it may also be necessary to review the terms of the transaction from an Irish competition law perspective. In some cases, the transaction may be required to be notified to the Competition and Consumer Protection Commission (CCPC).
Any notice or consent requirements should be specifically dealt with in the sale and purchase documentation and would typically be included as pre-conditions to the completion of the transaction. While the last few months have been demanding for HIQA, to date we have not seen any delays in the processing of HIQA notifications or applications which is positive for both buyers and sellers alike.
3. Due diligence
Before committing to purchase any company or business, a potential buyer is strongly advised to undertake a detailed review or “due diligence” of the company, the business and the assets which it is acquiring. The heads of terms issued by the buyer to the seller will usually specifically state that the proposed deal is subject to the buyer and its advisers completing and being satisfied with their due diligence exercise.
The buyer and its legal advisers will be particularly interested in reviewing matters such as ownership structure, regulatory and compliance matters including HIQA registrations, finance, and employee matters. Due diligence on COVID-19 related matters is now a key consideration and the areas covered include:
- The number of confirmed and suspected cases of COVID-19 and deaths arising from COVID-19
- The impact of COVID -19 on employees and practices and procedures in the nursing home
- The supports applied for and received under the Temporary Assistance Payment Scheme for Nursing Homes
- The measures taken in response to the pandemic or further to any guidelines, standards or recommendations issued by the HSE or HIQA.
A buyer’s insurance and financial advisers also carry out separate risk assessments and due diligence on COVID- 19 related matters.
As a seller, it is important that all financial, legal, contracts and operational information is accurate, up-to-date and presented accurately, comprehensively, and in a user-friendly manner. Specific details of any insurance claims that relate to COVID-19 matters should also be readily available for review.
The seller will be required to provide a disclosure letter to the buyer as part of the transaction documents. It is important that the seller, in this document, fully discloses all exceptions to the warranties which are contained in the share purchase agreement / asset purchase agreement and which now cover COVID-19 related matters. A thorough and organised process is required to ensure inadvertent breaches of the transaction documents are avoided by the seller.
4. Smooth transaction
The full range of practical issues when transferring the ownership of a business to a new owner should be considered by the parties. These include:
- Whether the seller or family members intend to continue to work in the business after the sale
- Informing staff and residents of the change in ownership
- The transfer of records and information to the new owners
- The alignment of internal systems.
5. Post transaction considerations
Once the sale and purchase process is complete, the new owners often use the transitional period to review and update any outdated or non-compliant practices in the business. Given the CCPC’s published guidelines on the area of unfair terms for contracts for care, it is more important than ever for nursing home operators to ensure that the contracts they issue to residents are transparent, clear and not uncertain. An audit of data protection and privacy policies is a worthwhile exercise to identify any non-compliance issues.
Despite the impact of the COVID-19 pandemic on nursing homes in Ireland, the deal market in the sector continues to be buoyant as international investors continue to drive consolidation. Demographics indicate that the sector will see continued growth together with reforms and increased regulation. Whether you are buying or selling, it is important to approach the sales process with a high level of preparation and planning. Engaging your lawyers early in the transaction discussions is a positive step in achieving a smooth and timely process. Early engagement allows important issues to be addressed so that they do not negatively impact the overall deal structure or delay completing the transaction.
Should you require any further guidance about any of the issues discussed in this article, contact a member of our Corporate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.