Investment and M&A modes in the senior care industry


Policies towards the elderly care sector have remained positive since the publication of several statements aimed at accelerating the development of the aging services industry. An aging population and severe shortages in the growing healthy aging market have accelerated the influx of social capital into the elderly care industry, making it an attractive area to invest in.

Cindy Hu
East & Concord partners

Currently, investment in social capital in the industry in China is still in the early stages of development. The “common good” and “social” attributes of the senior care industry, the long-term nature and uncertainty of market returns, the diversity and specificity of the legal issues of our senior care facilities contribute to the difficulties of M&A in this regard in industry. This article collects hands-on experience and analyzes M&A models for the industry.

The main models

New building. Elderly care facilities can be divided into for-profit and non-profit facilities, depending on whether they generate profits and distribute these to investors or organizers.

Have you registered with the relevant market surveillance and administration department (non-profit institutions)? The administrative authority for the registration of public entities (non-profit entities having the character of a legal person of a public entity)? Or the Department of Civil Affairs (non-profit organizations with the character of a private, non-business entity)? They should all have reported to community service. Elderly care facilities that combine medical and elderly services should be approved as a medical facility or be put on record with the health department.

Public construction with private operation

This model is mainly used in projects that are funded by both social capital and the state. The operating model can be further divided into the following modes:

Authorized company: After the state finances the construction of elderly care facilities and entrusts the operation and management in whole or in part to social capital, the operator is responsible for profit and loss or the state pays the operator management fees and retains the right to income, or both parties share the income according to the operating status.

Leasing model: The state rents the properties and facilities of the institutions to social capital for use and collects rents. Social capital is responsible for the operation and administration of the institutions, ensures the security of the assets and is also responsible for the maintenance of the sites and facilities, is responsible for profit and loss and pays rents to the state.

Build-Operate-Transfer (BOT): As a public infrastructure, care facilities for the elderly are set up jointly by social capital and the government. In this model, social capital can participate in construction and provide a public service. This model encompasses three processes, namely build, operate and transfer. Social capital is responsible for their operation. After the operating law expires, geriatric care facilities must be handed over to the government without compensation.

Yang Jiaxin, Associate, East & Concord Partners
Yang Jiaxin
East & Concord partners

Mergers of Existing Institutions

As for the legal entities, for-profit senior care facilities mainly include corporations and / or partnerships, foreign-owned companies, sole proprietorships, sole proprietorships, partnerships, and other for-profit legal or partnerships. Not-for-profit entities mainly include legal entities of public institutions and private non-business entities.

When social capital brings together for-profit entities, especially those of corporations, it can usually undertake the acquisition of equity or assets that are easy to manage. However, if the institution is a sole trader, sole proprietorship, partnership, or other partnership, there are some limits to the investor and M&A model.

In particular, companies, organizations or corporations other than natural persons may not merge or acquire interests in an elderly care facility that is exclusively owned by individuals and can only be invested by natural persons; State-owned companies, 100% state-owned companies, listed companies and social organizations can neither acquire a geriatric care facility in the form of a general partnership, nor are the personally liable partners transferring ownership of a geriatric care facility in the form of a limited partnership and become a general partner.

There are legal barriers to social capital in order to merge or acquire an elderly care facility in the form of a legal entity under public law. On the one hand, there is no term such as “shareholder” or “equity capital” for a legal person under public law, but only “organizer” and “right of ownership”. There is no legal basis as to whether the “right to possession” can be treated as “equity”.

On the other hand, the organizers of facilities are mainly the governments at all levels (e.g. the Civil Affairs Bureau), and in practice the change of the organizers of state elderly care facilities is limited to changing the name of the organizers or changing the affiliation of the institutions due to government reforms or other institutional adjustments. Therefore, it is difficult for social capital to implement M&A by changing the organizers of institutions.

In addition, facilities are set up for charitable purposes and do not distribute any profits to the organizers. Hence, it is difficult for social capital to merge and acquire such institutions for financial consolidation and return on investment.

Because of the charitable nature of asset donation and the public welfare character of private charitable geriatric care institutions (“private institutions”), it is difficult for social capital to merge and acquire them through joint equity or asset mergers and acquisitions.

The acquisition of social capital from private non-governmental institutions takes place mainly through indirect capital acquisition or conversion into profit-oriented institutions (“conversion mode”). The latter is a complex and difficult process, and indirect equity M&A are more widely used in practice, particularly in two situations:

in the event that the organizer is a legal person, the social capital can acquire a majority stake in the organizer’s company (including its majority shareholder or actual controller) through equity acquisition or a capital increase;

East & Concord partners(2) If the organizer is a natural person or a person with no legal capacity, the social capital can acquire a majority stake in the new service / management company that was founded by the organizer and / or his person responsible for processing as the operating company (“new facility”) who will enjoy the right to operate and manage the institute) by way of equity acquisition or the capital increase of the new company.

Cindy Hu is a partner and Yang Jiaxin is an associate at East & Concord Partners


East & Concord partners
20 / F, landmark of the tower 1 building
8 east 3rd ring road north
Chaoyang District, Beijing 100004, China
Tel: +86 10 6590 6639
Fax: +86 10 6510 7030

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