Shares rollercoaster for retirement home builder McCarthy

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McCarthy & Stone is well known as the company that builds, sells and manages retirement homes and flats in the UK. The company has made a remarkable recovery after near collapse during the 2008 financial crisis. It returned to the stock exchange only five years ago and has now come into the sights of US private equity firm, Lone Star.

In October, Lone Star offered to buy McCarthy & Stone for £630 million, causing a near 40% jump in the company’s share price which has been fairly stable since.

The pandemic has meant little has happened within the McCarthy & Stone business.  Its directors are recommending that their shareholders accept the offer, despite shares remaining around 20% lower in value than in February 2020. If the move goes ahead, McCarthy & Stone will become a private company.

Recently, Lone Star made an unsuccessful attempt to buy the Asda supermarket chain and is among several overseas private equity firms attempting to capitalise during the pandemic by acquiring British companies at a discount.

Lone Star certainly understands the possibilities of an attractive growing market, with a rapidly ageing population and a recognised undersupply of appropriate housing for older people. AgeUK’s 2019 later life fact sheet quotes some eye-openers from its analysis of data obtained from the Office of National Statistics:

  • •  There are nearly 12 million (11,989,322) people aged 65 and above in the UK, of which 5.4 million people are aged 75+, 1.6 million are aged 85+, Over 500,000 people are 90+ (579,776) and 14,430 are centenarians.
  • The number of centenarians living in the UK has increased 85% in the past 15 years.
  • By 2030 it is anticipated there will be over 21,000 centenarians.
  • In 50 years there are projected to be an additional 8.6 million people aged 65 years and
    over: a population roughly equivalent to the size of London.
  • By 2030, one in five people in the UK (21.8%) will be aged 65 or over, 6.8% will be aged 75+
    and 3.2% will be aged 85+.
  • The 85+ age group is the fastest growing and is set to double to 3.2 million by mid-2041 and
    treble by 2066 (5.1 million; 7% of the UK population).

It is estimated that only around 20,000 people currently live in retirement homes: assisted living for the over-70s or over-55 accommodation in the UK. The residents of these retirement homes pay a service charge to live in their homes and McCarthy & Stone has been criticised in the past for overcharging its residents.

Private equity firms have a reputation for having high levels of debt – cutting costs and service, while increasing charges before selling up again. Former pensions minister, Baroness Altmann, has shown concern that residents could be left unable to sell their properties if charges aren’t ‘fair and transparent’.