Kids in Bankruptcy

October 14, 2007 permalink

When a for-profit foster home chain can't pay its bills, the bankruptcy trustees scramble to find homes for dozens of children before school gets out. What children need is the love of a warm accountant.

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Children's homes hit by buyout fears

Concern at private equity's role in social services

Nick Mathiason, business correspondent, Sunday October 14, 2007

The collapse of a private equity-backed care home dealing with sexually abused and autistic children has sparked renewed concern at the advance of financial buyers into British public services.

Sedgmoor, owned by established private equity firm ECI Partners, ran 45 homes for vulnerable children. It went into administration two weeks ago.

After selling most of the care homes, administrator KPMG spent several days urgently liaising with local authorities to find places for dozens of children. Charities claimed some had nowhere to go after the school day ended.

Jack Dromey, Unite deputy general secretary, said: 'It beggars belief that the care of the vulnerable might now be put at risk by the cost-cutting which is a characteristic of private equity. Inevitably long-term care considerations will give way to short-term profit-making.'

But sources close to ECI blame its demise on a shift in government policy which saw children moved out of care homes into foster homes. The policy change has prompted a stampede of private equity firms into the foster-care sector. The venture capital firm 3i and a number of other financial buyers still run dozens more children's care homes.

Experts say private equity firms now control 30 per cent of the independent foster agency market. Last December, Sovereign Capital bought the country's second largest foster agency, NFA, and at least six big agencies have fallen to private equity players. Sources say foster businesses are keen to turn to private equity as a ready source of capital to fund rapid expansion.

The trend has sparked deep unease among children's charities, who say private equity-backed foster agencies are piling extra work on social workers and will raise charges to local authorities.

Kevin Williams, chief executive of The Adolescent and Children's Trust (Tact), the UK's largest fostering and adoption charity, said: 'This is not an issue for us about the private sector operating in foster-care. Our issue is with private equity firms, their stated aim of maximising profits for shareholders and operating for short-term gain. This is not compatible with providing long-term care for some of the most vulnerable children in society.'

Williams added that regulations governing fostering and care homes needed to be strengthened to deal with a new breed of aggressive financial buyer.

In April, Ofsted was handed responsibility for children's homes and social care. Insiders said it did not have the expertise to understand private equity's complex financial modelling and the implications it might have. Ofsted said: 'As part of the transfer of this responsibility, Ofsted employs all inspectors who were previously employed by the Commission for Social Care Inspection solely or mainly to regulate and inspect children's homes, including carrying out checks on their financial viability.'

It has emerged that Sedgmoor, which ECI bought for £13m in 2000, ran into difficulties several months ago. It leased its homes and when occupancy levels fell could not afford to pay staff or rent.

Private equity firms are also big players in the elderly care sector.

Source: Guardian (UK)