UK Care sector: M&A opportunities amid operational challenges

A growing market with pressing needs

The demand for social care services in the UK is surging due to an ageing population and rising life expectancy. The Office for National Statistics (ONS) projects that by 2040, nearly a quarter of the population will be over 65, intensifying the need for high-quality residential and domiciliary care services.

Public sector budget constraints mean that private providers play a crucial role in meeting this demand. Many small and mid-sized care homes, often family-run businesses, are struggling with financial viability, making them prime targets for consolidation.

The challenges facing care providers are proving to be increasingly difficult to overcome:

1. Chronic workforce shortage: The sector faces difficulties in recruiting and retaining care staff due to low wages, high turnover, and the lingering effects of both Brexit and the COVID-19 pandemic. A crutch for the industry has been the skilled worker visa which has allowed care providers to hire experienced and skilled workers from overseas to help reduce the workforce shortages faced locally across the UK. However, the UK government’s recent announcement of their intentions to imminently close this visa route to new applicants will cause significant challenges to an already fragile sector with high vacancy rates and an ever-increasing need for additional workers.
    
2. Inflationary cost pressures: The care sector has faced increased costs particularly around energy, food, and staffing. This has squeezed already tight margins for many businesses, especially for smaller care homes and domiciliary care providers. The recent increases in national minimum wage, living wage and national insurance have further compounded the financial challenges facing the sector. Financial sustainability is a growing concern for many providers.
    
3. Investment required in property: Despite no shortage of demand for new placements for many care providers, adequate property supply has been a chronic issue. With complex planning regulations to navigate, difficulties in identifying suitable land or properties to acquire, increasing build and refurbishment costs, as well as higher interest rates, creating new beds and investing in modernising ageing properties continues to be one of the biggest challenges across the sector.
    
4. Increased regulatory scrutiny: Regulatory bodies such as the Care Quality Commission (CQC) have intensified their scrutiny of care providers in recent years, demanding higher standards and increased investment in compliance and governance.

M&A as a strategic response

In this challenging environment, M&A has emerged as a key lever for transformation. The Care sector has seen a steady flow of deals in recent years, involving private equity firms, strategic buyers, and investors seeking scale and operational efficiencies.

Unlike many sectors, deal volumes over the last three years have been quite consistent in the UK social care sector. Q1-2025 saw a three year high of 49 deal completions, highlighting the continued interest in social care M&A activity in the UK. An element of this increase in activity in Q4-2024 and Q1-2025 was due to increased seller motivations based on rumoured, and then confirmed, changes in capital gains tax (CGT) rates and Business Asset Disposal Relief (BADR). However, several factors are driving the wider consistency and continued M&A activity across the Care sector:

1. Consolidation for scale: Larger operators can spread overheads, improve bargaining power with local authorities and suppliers, and better withstand regulatory and economic pressures. This makes consolidation a very attractive strategy for achieving sustainability.
    
2. Investment in innovation and tech: Acquiring and investing in tech-enabled care businesses allows operators to modernise service delivery, improve workforce efficiency, lower costs and offer data-driven care models leading to better outcomes. Digital health integration is particularly attractive to investors.
    
3. Investment in property: External investment can help providers access capital to invest in upgrading outdated homes and ageing facilities that require significant funds to meet modern standards and make them more attractive for new placements. For some businesses, the challenge may be more about securing the capital required for building new properties to cater for future growth.
    
4. Diversification across care segments: Buyers are increasingly looking to diversify across residential care, nursing, specialist care (such as for mental health or learning disabilities), and at home care to balance risk and tap into faster-growing sub-sectors. 
    
5. Distressed opportunities: The financial challenges facing many smaller providers creates acquisition opportunities at discounted valuations for those with the capital and capability to turn around underperforming assets.

Sale of Acorns Health Care

Here at Quantuma, we recently advised Acorns Health Care on its sale to Ignite Growth, a UK-based investor. The acquisition will unlock the next phase of Acorns’ growth and forms the first stage in Ignite’s regional growth strategy. The transaction provided continuity for Acorns with a supportive equity partner in Ignite Growth and will take the business forward into its exciting next phase of growth.

Care sector outlook

While the UK Care sector remains under significant pressure, the long-term fundamentals - ageing demographics and rising care needs - are robust. M&A activity is poised to play a critical role in reshaping the industry, with well-capitalised and forward-looking buyers able to drive consolidation, efficiency, and innovation. The next wave of deal-making will likely focus not just on scale, but on building resilient, tech-enabled, and care-centric models fit for the future.

Let’s talk

Our Corporate Finance team has advised on the successful sale of UK-based social care businesses and we understand the challenges facing both business owners and investors in the sector.

We are well-placed to advise business owners considering their succession or exit plans, those seeking new investment, or investors and acquirers seeking advice or guidance on a potential acquisition opportunity.

If you would like to discuss any of the issues raised in this article or find out how we can help you or your Care sector clients, please do give us a call.

Calvin Bond
Director
calvin.bond@quantuma.com
 

Darra McCarthy-Paul
Manager
darra.mccarthy-paul@quantuma.com