This year saw the spectacular collapse of one of the UK's largest health and social care providers, Southern Cross. Poor management was clearly to blame but the company had fallen foul to the rapacious appetite of private equity investors who pushed the group towards a stock market flotation via a flawed business strategy.
Fingers have pointed at US private equity giant Blackstone which in 2006 pocketed £500m from the flotation of the group, tripling its original £162m investment. Southern Cross expanded rapidly following the Blackstone and the then CEO Philip Scott's plan to sell off its freehold properties in a sale-and-leaseback model, which netted billions in the height of the property boom.
However the care homes received no investment to improve conditions for the elderly and staff were paid the minimum wage. The Care Quality Commission (CQC) rated many of its homes zero out of 10 on its quality index.
After Scott left the business, James Buchan became CEO in January 2009 – his remit to turn the ailing group around. He however couldn't save it and said the private equity investors and previous management deserved "zero criticism" as they did what they thought was right in the property boom years. The firm had overstretched itself - occupancy and local authority fee levels subsequently fell during the recession while rents kept rising. Buchan tried to renegotiate with the landlords of its 752 homes a 30% reduction in rent - a kind of tourniquet to keep the company on a life machine.They weren't interested.
Buchan left the company last month. A few Southern Cross care homes have been picked off by other PE-backed care providers, such as Care UK and Four Seasons. Sadly, however, 31,000 elderly residents face a pretty miserable Christmas.