Clearminster
Transaction Background
In January 1998 Graphite Capital jointly financed the start-up of the Clearminster care home business with Mahesh Patel. Each invested £3.1 million in the venture over a three year period. We had successfully invested in Mahesh’s previous care home business. Clearminster expanded rapidly, mainly by acquiring under-performing care home assets across the UK.
Deal Attractions
Mahesh Patel had a successful track record in the care home sector. The sector as a whole was in recession as a result of over-capacity and government pressure on fee rates. The number of care homes being closed and the ageing of the population suggested that the recession was likely to be short-lived. The sector also remained highly fragmented with significant opportunities to acquire under-performing assets relatively cheaply.
Achievements
- by 2003 Clearminster had achieved its start-up targets
- a successful acquisition programme was underway
- most acquisitions were of under-performing homes or those with development potential
- between 1998 and 2003 Clearminster grew to an 18 home group with 570 beds
- annualised EBITDA before head office costs reached £5.2 million in 2003
Exit
- by 2000/01 the recession in the sector had abated and average home profitability was increasing
- multiples paid for care home assets increased materially
- we successfully re-financed Clearminster in January 2002 and saw all of our original investment repaid
- in late 2003 we sold our stake in Clearminster to Mahesh Patel
- Graphite funds achieved a total return of £7.7 million, corresponding to 2.5 times our original cost