The UK Competition and Markets Authority’s (CMA) scrutiny of US healthcare REIT Welltower’s acquisition of more than 600 operational UK care homes could become a defining moment for consolidation in the adult social care sector, with lawyers from Browne Jacobson warning that investors will now face far greater scrutiny of local market concentration and operational influence.
The CMA said this month that four completed acquisitions by Welltower involving homes managed by Barchester Healthcare, HC-One, Aria Care and Danforth Care raised a “realistic prospect” of a substantial lessening of competition (SLC) in a number of local markets.
Unless acceptable undertakings are offered, the transactions will proceed to a Phase 2 investigation.
The deals, which collectively span more than 600 operational care homes and development sites, represent one of the largest recent consolidations in the UK care home market. The CMA’s investigation is particularly notable because it extends beyond operators themselves to examine the influence institutional investors and property owners may exert over operational strategy, pricing and competitive dynamics. This reflects a wider shift in regulatory thinking.
According to Matthew Woodford, partner at Browne Jacobson, the CMA’s concerns are likely to force investors to conduct much more detailed local competition analysis before transactions are completed.
“Investors and providers are likely to need to undertake increasingly local competition analysis at a much earlier stage of transactions,” he said. “The focus is likely to be less on national market share and more on highly localised catchment areas, referrals and the alternatives available to residents and commissioners in individual communities.”
The CMA’s Phase 1 findings do not automatically mean divestments will be required, but the regulator has indicated that remedies may be necessary in areas where competition concerns cannot otherwise be resolved.
“At this stage, it is not possible to say as the available information is limited, and a full Phase 2 investigation would be required before that point is reached,” Woodford said.
“However, Welltower could offer voluntary undertakings to divest homes to try and address the concerns raised in respect of the local areas where a realistic prospect of an SLC has been identified.”
He added that divestments of “individual homes or clusters of homes in specific local areas remain one of the most likely remedies available to the CMA where local overlap concerns cannot otherwise be resolved”.
But “the scale and scope of any remedy will depend on how narrowly the CMA defines the relevant local markets and the degree of influence it considers Welltower and associated operators to have over those assets”.
The investigation comes at a sensitive moment for the UK adult social care sector, which faces growing demographic demand alongside persistent funding pressures and an urgent need for investment in modern facilities.
Vicky Tomlinson, partner and corporate health lead at Browne Jacobson, said regulators face a difficult balancing act between maintaining competition oversight and ensuring the sector remains attractive to institutional capital.
“The UK adult social care sector is significantly underfunded and needs a huge amount of investment to be able to support ever increasing care needs,” she said.
“There is a challenge for regulators to ensure there is proper oversight to protect residents but without creating uncertainty that may ultimately deter investment.”
Tomlinson said the CMA’s intervention was unlikely to deter institutional investors entirely, but would probably change how deals are structured and diligence conducted.
“It is more likely to mean that investors will seek to address potential concerns in advance of investing,” she said. “There are a number of ways of doing this according to the level of potential risk identified. These have different timing and cost implications.”
The CMA investigation is being closely watched across the healthcare real estate and care home investment markets because it may signal a broader shift in how UK competition authorities assess consolidation in highly localised healthcare sectors.
The case could establish a tougher framework for future transactions involving care home operators, property owners and financial sponsors, particularly where investors may be perceived as exercising influence across multiple operators within overlapping regional markets.
