Consolidating Care: Why M&A is key to a stronger, fairer elderly care system

The UK health and social care landscape is at a critical juncture. The Labour Government’s recent decision to abolish NHS England – formerly the world’s largest quango – and reintegrate its functions into the Department of Health and Social Care (DHSC) signals a clear intent to reduce bureaucracy and redirect resources towards frontline services. While this structural reform aims to streamline decision-making and empower NHS staff, it also starkly exposes the absence of a corresponding strategy for elderly care. In this context, mergers and acquisitions could play a pivotal role in bridging delivering better outcomes by modernising infrastructure, professionalising operations, and alleviating pressure on the NHS.

 

A Broken Model

The current elderly care model, heavily reliant on under-resourced local authorities, is unsustainable. Years of policy inertia have compounded the challenges, with successive governments delaying meaningful reform, including repeated postponements of the long-promised cap on care costs. As a result, social care remains a fragmented mix of overstretched council provision and a growing private-pay market, with no long-term funding solution in sight. Hospitals will continue to face systemic pressures—particularly around delayed discharges—unless social care receives adequate funding and structural reform.

Despite these funding challenges, mergers and acquisitions (M&A) represent a practical and immediate lever to drive structural reform in elderly care. Against a backdrop of rising demographic demand, regulatory inconsistency, and operational inefficiency, elderly care is attracting growing interest from private investors and strategic acquirers. Market participants are recognizing the potential to scale high-quality care provision, introduce innovation, and drive improved outcomes through consolidation and operational transformation, all of which would relieve some of the burden on the current care model. Consolidation can help address inefficiencies that local authorities and individual operators alone cannot fix.

 

Pinch Points

The elderly care segment comprises residential and nursing homes for older adults, including high-acuity services such as dementia care. It is a structurally fragmented market, valued at approximately £20 billion, with around 450,000 residents at any given time.

Demographic pressures are mounting – the number of people aged eighty and over in the UK is projected to increase by 1.3 million over the next decade, accompanied by a rise in chronic conditions such as dementia, frailty, and mobility impairment. To maintain the current availability ratio of 7.5 seniors per bed, around 180,000 new beds will be required within this period. However, the development pipeline indicates only around 30,000 beds are currently in planning or construction – leaving a potential shortfall of 150,000 beds. With many older homes closing due to outdated infrastructure, this ratio could deteriorate to 9–10 seniors per bed by 2032. The resulting capacity gap will exacerbate pressures on hospitals, as patients remain stranded in acute settings awaiting care placements. Consolidated operators are better placed to fill this gap quickly – leveraging capital, experience, and planning expertise to accelerate development and streamline operations.

At the same time, resident expectations are evolving, and the Care Quality Commission (CQC) continues to raise the bar on standards. There is a marked shift in demand towards hotel-style environments and premium amenities.

Lastly, the upcoming changes to National Insurance contributions in April are expected to have a significant financial impact on care home operators. The employer NIC rate will increase from 13.8% to 15%, and the threshold at which employers begin paying this tax will fall from £9,100 to £5,000. For labour-intensive sectors like social care, this will drive up employment costs by approximately 10%. While operators are likely to pass on these costs through higher fees for private-pay residents, the increases may still erode margins, particularly where they are already thin. As a result, some providers may find it difficult to remain viable, creating acquisition opportunities for larger consolidators with the scale, strong agency relationships to manage staffing shortages, and the financial resilience to absorb the additional burden.

 

A Divided Sector

Around 45% of care home residents are self-funding, with the remainder supported by local authorities or the NHS. This has created a two-tier fee structure: private-pay residents typically pay £1,200 or more per week for nursing care, compared to sub £1,000 per week from local authorities. Furthermore, the market is divided between Tier 1 homes – modern, purpose-built facilities with en-suite rooms, strong regulatory compliance, and locations in more affluent areas – and Tier 2 stock, often older, converted properties and a lower proportion of self-funding residents. An affordability gap also exists for middle-income families is widening, with many falling between eligibility for state support and the ability to self-fund prolonged care; currently a resident must have less than £23,250 to be eligible for state funding.

Tier 1 stock. representing around 30% of the market, continues to attract strong interest from institutional investors, including REITs and private equity. Consolidation in this segment offers immediate access to high-quality, income-generating homes with strong occupancy rates, stable margins, and low CAPEX requirements. Investors benefit from predictable cash flows and the ability to create high-end national platforms through selective bolt-ons and brand consolidation.

Deals in this area include:

  • Lovett Care’s acquisition of New Care, a luxury operator with over 1,000 premium beds across fifteen homes.
  • Elevation Advisors’ sale of three new-build homes (in Glasgow, Nottingham, and Devon) to French investor Euryale.
  • Foundation Group and Deerpath Capital’s acquisition of Harford Care, valued at £100 million.
  • Elevation Healthcare Properties’ sale-and-leaseback with Clariane, with the homes leased to Berkley Care Group.

Meanwhile, Tier 2 stock, comprising 70% of the market, presents a different, but equally compelling opportunity. These assets, often located in underserved regions, can be acquired at attractive valuations, particularly where larger operators are divesting non-core sites. With the right operational focus, scale benefits, and targeted investment in facilities and workforce, operators can drive meaningful improvements in quality and margin. This strategy not only delivers strong financial returns but also supports a broader social mandate by raising standards in areas historically neglected by policy and capital alike.

Deals in this area include:

  • Kara Healthcare’s acquisition of seven homes, sourced from administrators and Peterborough Care.
  • Smart Care Homes’ acquisition of Plymouth Care Group, including four homes and an independent living unit with 150 residents.
  • Welltower’s acquisition of Care UK, the UK’s fourth-largest provider, adding 163 homes to its portfolio.
  • HC-One and Four Seasons – historically among the UK’s largest care providers – are actively divesting parts of their portfolios for discounted rates, which are Tier 2 stock and are being acquired by regional operators.

Overall, Tier 1 stock typically commands valuation multiples of high-single to low-double digit EBITDA multiples, reflecting their modern facilities and high proportion of private-pay residents. In contrast, Tier 2 assets trade at mid-to-high single digit EBITDA multiples, depending on location, quality of estate, and occupancy levels.

Given the high barriers to entry, including planning restrictions, regulatory hurdles, and the time required to build a trusted reputation, M&A remains the most viable route to achieve modernisation.

Crucially, M&A also unlocks the scale required to implement meaningful technological change in care delivery. AI-powered care management platforms, fall detection sensors, predictive analytics, and companion robotics are being trialled. For example, 4D radar monitoring systems have demonstrated a reduction in falls of up to 66% in pilot schemes. Such innovations enhance resident safety and enable care teams to deliver more with less, outcomes that are difficult to achieve without consolidation and learning from best practice.

 

Conclusion

The UK elderly care system stands on the brink of transformation. Recent M&A activity reflects both the immense challenges and the enduring optimism within the sector – challenges, in that many deals are driven by financial distress or the need for scale to survive, but optimism in the form of forward-looking investors who see long-term potential and are driving change through consolidation.

With sensible reform – including enabling responsible M&A through supportive regulation and access to capital, elderly care can evolve from a system in crisis to a dynamic, outcomes-driven market. In this future, M&A will be more than a vehicle for financial return – it will be a key lever for delivering better, more integrated care to some of the most vulnerable individuals in society.

 

Graduate Blog Post

Harry joined Heligan Group as part of the 2024 Graduate intake.