The Value of Everything by Mariana Mazzucato

The Value of Everything by Mariana Mazzucato

Author:Mariana Mazzucato [Mazzucato, Mariana]
Language: eng
Format: epub
ISBN: 9780241188828
Publisher: Penguin Books Ltd
Published: 2018-04-26T05:00:00+00:00

Figure 22. PE-backed companies as a percentage of all US companies (by enterprise size)10

The recent history of the care home and water industries in the UK shows how PE can change a business – and not necessarily for the better. Until the mid-1990s the country’s care homes were owned either by small family firms or by local authorities.12 Today, for a combination of political and financial reasons, many local authority homes have closed. A new breed of financial operator has moved into the market, largely following a PE model, often ‘selling’ many of its places to local authorities but also generating private profit. In 2015, the five biggest care home chains controlled about a fifth of the total number of care home beds in the UK. These operators were attracted by stable cash flows, part of which came from local authorities, and opportunities for financial engineering: cheap debt; property which could be sold and leased back; tax breaks on debt interest payments and carried interest; and – ultimately – frail and vulnerable residents whom the state would have to look after if the business failed. The corporate structures of some care home owners became exceedingly complex and often hidden in tax havens, while corporation tax payments were low or nil. Given that local authorities still funded many care home placements and that the nurses employed in the homes had been state-trained, opaque corporate structures and minimal tax payments are hardly the way to provide an essential public service.

Four Seasons Health Care displays many of these characteristics. The company owns the biggest chain of care homes in the UK, with 23,000 beds in 2015. But it was only a small Scottish chain until its acquisition by Alchemy Partners, a PE firm, in 1999. Having enlarged the company, Alchemy sold it in 2004 to Allianz Capital Partners, another private firm, which two years later sold it to Three Delta, yet another PE firm. By 2008, during this game of pass the parcel, the company’s external debt had ballooned to £1.5 billion, carrying an annual interest charge of over £100 million – or an unsustainable £100 per bed per week. In 2012 the company was bought by Terra Firma – you’ve guessed it, a PE firm – controlled by Guy Hands, a well-known British financier who had cut his teeth at Goldman Sachs. Despite a financial restructuring involving losses for equity holders, bondholders and banks before Terra Firma acquired the business, by 2014 Four Seasons was losing money, and a pre-tax loss of £70.1 million in 2015 deepened to £264 million in 2015.13 The cost of debt-servicing was at least partly to blame. The company blamed local authorities for freezing the amount they would pay for residents, although the authorities themselves were suffering severe budget cuts under the Conservative-led government’s austerity programme. The Care Quality Commission, the government body which monitors standards in care homes, was sufficiently concerned about the business health of Four Seasons that at one point it embargoed twenty-eight of Four Seasons’ homes, meaning that they could not take in new residents.


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