CareTech plc acquisition of Cambian

CareTech’s acquisition of Cambian had been ‘transformational’, Farouq Sheikh told Care Conversation delegates. “It came in our 25^th year in business, having started from a single home in Watford in 1993.”

CareTech, a leading provider of social care supporting both adults and children, now had around 10,000 staff and 4,500 service users, he said. “That’s been a fantastic journey for us.” The organisation had listed in 2005, primarily not to raise money but to create a culture of shared ownership. “You can only scale up if you have people who feel they own the business. Our ambition was to try and make every home manager a shareholder in the company.”

Several hundred staff participate in a number of shareholder schemes, he told the seminar, and with the Cambian acquisition the aim was to substantially increase that figure. “When we listed we were looking after adults with a learning disability mainly in residential settings but we had massive ambitions to grow that business and related care pathways. We now have three main parts which is adults, children’s specialist services and foster care all focusing on the most acute and vulnerable service users.  The focus is still on creating care pathways etc.”

The company’s growth to date had principally been organic, augmented with smaller bolt on businesses he said, and Cambian had been the company’s largest ever transaction. “We knew them, as they were the only other listed operator, and we knew the management team.  They had a very strong adult business and prior to listing in order to gain scale they had bought some children’s services.  I don’t believe they fully integrated the businesses prior to listing.  In addition post listing they did make a number of acquisitions and sold their adult business. They perhaps grew too quickly without growing their back office which can sometimes come back and bite you.”

“When we looked at Cambian as a potential acquisition we set ourselves three disciplines as a Board – does it fit with our business, is the necessary turnaround such that we can manage it without impacting our business, and would the price be right for our shareholders? We were committed to making sure it would be accretive to our shareholders post deal.”

CareTech had told its shareholders that, “this is the journey we’re on”, he said. “It’s very much about merging two good businesses. It had been very difficult to get all the diligence done in a public transaction but with the support of the Cambian shareholders we were able to do thorough diligence on the Cambian business and the consensus numbers, and as a result we were able to take a prudent view of the numbers the business could deliver going forward.”

It had been a transaction that they’d had to sell to their shareholders, he said. “What they bought into was the synergy between the two businesses, and it wasn’t hard to sell in the City because it created a larger organisation with more liquidity and a bigger shareholder base. We were very open and transparent with everyone throughout.” His company hadn’t looked at the transaction as a ‘must-do’ deal, he stressed, but rather a deal “we’d do at the right time and at the right price”.

We were advised to gain approval from the Competition and Markets Authority (CMA), he said. This meant a period where a hold separate embargo was placed on the business until we received unconditional  clearance in February 2019 .“It was certainly a learning experience but, two months in, Cambian is a great brand and a great business, and we’ve very excited about the combination of the two groups. Numbers are one thing, but if you can achieve outcomes for the people you look after you’ll always do well.”

In terms of the outlook for the sector as a whole, there were certainly challenges, he said. “But we’ve been in this space for 25 years and we love it – there aren’t many businesses where you can change people’s lives. That’s such a rewarding thing. The cake is getting bigger, and it’s growing by about 5% a year.”

While there were challenges with labour and wage, the opportunities were significant and, if anything, Brexit also created opportunities for the sector, he said “We’re completely agnostic. We look after the most vulnerable in society, it’s ring-fenced money, and there’s definitely a softening in the property market. I’d much rather be in this business than be a retailer. If you get the quality right and the outcomes right for the people you support, you’ll have a successful business.”