Buyout group fights back in care home crisis row

THE PRIVATE equity industry yesterday hit back at claims it was responsible for Britain’s care home crisis.

US private equity firm Blackstone, which owned Southern Cross from 2004 to 2006, has been criticised for the care home operators’ financial woes.

But the British Venture Capital Association (BVCA) defended the firm yesterday, saying the accusations were “based on material inaccuracies and misstatements” and defended private equity funds as “significant and responsible investors in health and social care.”

At a protest organised by the GMB union yesterday, Blackstone’s ownership was slammed as “a financial exploitation process that does not care if it exploits elderly people in care.”

The BVCA said such attacks were groundless as Southern Cross had been independently run for five years, after Blackstone floated it in 2006.

“It is completely false to state that Blackstone has stripped the property assets out of Southern Cross,” it said.

“Only three per cent of the 578 leasehold properties created leases and sold the properties during Blackstone’s ownership. Blackstone had no control over the amount of debt nor any additional sales lease-back transactions after its ownership period.”

While the financial crisis showed the sale-and-lease model to be flawed, Southern Cross’ management failed to make the changes needed after Blackstone’s exit, taking out development loans worth £77m from September 2007 to March 2008 alone to fund acquisitions.

BVCA chief executive Mark Florman said the attacks ignored the “imperative” need for private money in health and social care as the government struggles to fund all residential care.

Private equity funds provided “not only necessary capital investment but also introducing modern working practices,” he said.

“With a growing need and constrained public funding, it is imperative that private sector investment continues to flow into the sector,” he added yesterday.