The award-winning Maria Mallaband Care Group (MMCG) has a long-established reputation for providing care homes of the highest quality but sadly this counted for little when its expansion plans were curtailed two years ago by a scarcity of bank funding. Thankfully by thinking outside the box the company is once again ploughing ahead with a strong rollout programme, as Phil Burgan, Chief Executive, recently explained to Construction Industry News.
“Whilst we’d come through the recession unscathed, by 2013 the banks were wanting their debt amortising faster than before as the wider economic picture improved,” outlines Mr Burgan. “As a consequence we just weren’t able to expand because all the money we were making was going to amortise debt.
“I wanted to grow again so I commissioned Rothschild bank to have a look at our company and identify how we could grow once again. We explored all sorts of models, from private equity through to more bank debt, but in the end I chose the REIT (Real Estate Investment Trust) model. In June 2014 we therefore sold and leased back some of our assets to HCP, a US REIT, enabling us to pay off all our debt and have a little bit of cash in hand. More importantly, however, it allowed us access to their almost unlimited funds to expand the business further, both organically and via acquisition.”
Subsequently the shareholders of MMCG disposed of a subsidiary company called Autism Care UK, which looked after around 300 autism clients with challenging behaviour in 70 units in seven different locations around the country. “We sold this business in February of this year to Lifeways and this allowed myself and the other shareholders to have a bite of the cherry and receive a return on some of the shares, which was nice,” adds Mr Burgan. “At the same time we were still very ambitious to grow. It was only 15 per cent of the combined group of companies and I’m still ambitious to increase that. To that end we acquired two very large care homes with HCP funding in May of this year.
These are very large 80-plus-bed homes and we’ve just opened three new 60-bed homes concurrently: one in Canterbury, one in Bisley near Guildford and one in Bicester, all of which have opened within two months of each other.
“We’re currently working on our development pipeline going forward to possibly start a roll-out with HCP funding. We certainly have options to help us speed up our programme and carry out more development each year.”
The ongoing progress that MMCG has been making has underlined the wisdom of the approach it has taken. “We’ve had to think outside the box but it’s worked out well for ourselves. We simply wouldn’t have been able to grow the business as the banks were stifling us. They’ve got no new money, despite what they say. Any deal you see being done by the banks in the main involves refinancing of old debt or existing debt. The banks are too busy building their own balance sheets to enable ambitious companies to achieve any significant growth. As a consequence a high proportion of our industry has moved away from traditional banking for their funding requirements.”
With the financial aspect resolved, MMCG has not only been concentrating on increasing its portfolio but also ensuring that its existing care homes continue to operate at the required standard, an ethos that has seen it collect various awards over the years.
“Our quality of care is very high and is increasing all the time as we strive for continual improvement,” says Mr Burgan. “All care home operators are under pressure from the Care Quality Commission to keep improving standards and we’re no different. What does set us apart is that we’re starting from a higher base than many of our competitors because of the standards we’ve adhered to from the very beginning.
“With the latest additions to our portfolio we’re putting even greater resources into each new home opening. We now have a dedicated business manager in every home supporting the care home manager, as well as a bespoke marketing team for each site. We’re therefore putting a great deal more effort into hitting the ground running with our new homes than we did previously and this is really paying off. The Bisley home had 12 residents after just nine weeks of operation and the Canterbury home had eight residents just two weeks after opening. We’ve seen some really good results so far, all at very high private fees.
“In terms of where we’re seeing the opportunities going forward, we have changed tack a bit. One of the main reasons behind the removal of the Autism business was because it was publically funded. On the elderly care side, which has always been the bulk of our business, we’ve tended to focus on the more affluent private fee-paying end of the market, and that’s what I want to do going forward. To that end most of our development pipeline is in the south-east of England, as this is where the demographics are strongest and where the money is.
“We also still have our Countrywide Care Homes operation, which is made up of 30 former Southern Cross assets. They are mainly social service funded but because the entry price was so low when we purchased them they are still very profitable. Going forward, however, I see this being a difficult area of the market with the advent of the Living Wage. The market will become totally reliant on local authorities providing more funding for operators to be able to afford to pay the wage increases. My view is that some will and some won’t. The ones that won’t will see a massive decline in the number of care homes in their areas and they’ll have to change tack really quickly because they just won’t have enough beds.
“We’ve already got some local authorities that have got their head in the sand and they’re trying to keep people at home that should be in a care home but it’s just not going to work in the long-term. There is something of a crisis on the horizon in that sector unless the Government ring fences some money in the Spending Review in November.
“From our viewpoint we can cover the increased overheads caused by the introduction of the Living Wage with the profits from the private fee-paying side of our business so we’ll still be a presence in the sector. It won’t make any difference to us and we’ll obviously pick up business and improve occupancies in areas where other operators go to the wall.”
Despite this positivity and the opportunities that are sure to fall MMCG’s way as other operators with a less robust model fall by the wayside, Mr Burgan remains mindful of the potential hurdles that his business faces. “The biggest challenges stem from the CQC and their new reporting system. There’s been a lot of inconsistency in their reports, which has been a very difficult issue to contend with. In addition to dealing with local authority commissioners that are under massive pressure, these are the two biggest challenges we currently face.”
Even in the face of such hurdles, with the experience that MMCG has, coupled with its inherent flexibility to take a more suitable solution for each situation, the company looks well set to maintain the growth momentum it has seen since it was able to source alternative funding streams in 2013.
“Looking ahead to 2016, as we move towards the New Year, in 12 months’ time we would have hoped to have acquired some more upmarket private fee-paying elderly homes. We are building three or four more so we will hopefully have them in the pipeline. Fingers crossed there should be some more money in the public sector to sustain that level of growth, but if not we will be picking off a substantial amount of business from our competitors in our budget brand. We’re already seeing that. I’ve never known as many homes closing and that’s before the Living Wage comes into play. There are plenty of potholes in the road ahead for the sector potentially.”
Although the journey ahead for the majority of care home operators will be fraught with difficulty, it is clear that for MMCG’s part it is better placed than most to not only survive, but actually thrive moving forward.