Valuation of Residential Children’s Homes

Valuation of Residential Children’s Homes

If you are thinking about selling a residential children’s home group, understanding the valuation methods for these businesses is an essential first step. Whether you operate a single-site home or a larger group of settings, buyers will use a consistent method to calculate value.

This guide explains how residential children’s services are valued, what factors influence the multiple applied, and how to prepare your business for a future sale.

How Do Buyers Value Residential Children’s Homes?

Children’s homes are typically valued using an earnings multiple applied to EBITDA, which stands for Earnings Before Interest, Tax, Depreciation and Amortisation. Buyers focus on a version of EBITDA that reflects the underlying profitability of the business post-sale.

For example, a business generating £2 million of underlying EBITDA may be valued at 6x, resulting in an enterprise value of £12 million.

Most transactions are structured on a cash-free, debt-free basis, with adjustments for working capital and normal trading levels.

What Is Underlying EBITDA?

The reported EBITDA figure from your accounts is rarely used as the basis for a valuation. Buyers will make several adjustments to arrive at a more accurate and sustainable figure.

These adjustments typically include:

• Removing director or shareholder costs that will not continue post-sale

• Excluding one-off expenses, such as legal or consultancy fees

• Adding the full impact of profits from recently opened beds or placements

• Reflecting cost savings available to the buyer after completion

A credible, well-supported underlying EBITDA figure will have a significant impact on the final valuation.

What Multiple Will Buyers Apply?

In today’s market, EBITDA multiples for children’s services typically range from 4x to 8x, although this can vary depending on the quality, scale and profitability of the business. Multiples tend to be lower for small, single-site homes and higher for multi-site operators with strong governance, high occupancy, and positive inspection histories.

Key Factors That Influence Valuation

Ofsted Ratings

Buyers place significant weight on Ofsted inspection outcomes. Homes rated “Good” or “Outstanding” are considered more investable. Homes requiring improvement will often attract lower interest or reduced offers.

Fee Levels and Complexity

Higher weekly fee levels, especially those charged for high-acuity or off-framework care, can command premium multiples. Demonstrating the ability to charge additional 1:1 or 2:1 support fees also strengthens value.

Occupancy and Utilisation

Consistently high occupancy across your homes is a strong sign of operational effectiveness. Homes with low or unstable occupancy may be viewed as higher risk.

Staffing Ratios and Agency Use

Buyers closely analyse labour cost efficiency. Businesses with low reliance on agency staff and well-managed rotas tend to be more attractive.

Property and Investment

Freehold ownership is generally preferred and adds to the valuation. Well-maintained properties with minimal capex requirements are more appealing than settings in need of refurbishment.

Business Scale

Larger businesses with multiple settings typically attract stronger buyer interest and higher valuation multiples. This reflects not only operational leverage but also the potential for strategic platform value.

Valuation Ranges (2025)

Profile	Typical Characteristics	EBITDA Multiple (2025)
Small group (3–5 homes)	Good occupancy, limited agency, all homes rated Good	4-5x
Large group (10+ homes)	High fee levels, 90%+ occupancy, Outstanding/Good ratings	7-8x

Freehold property tends to support a higher valuation. Leasehold models typically see a reduction of at least 1.5x to 2x on the multiple applied.

What Does Cash-Free, Debt-Free Mean?

When selling a residential care business, buyers usually agree a value on a cash-free, debt-free basis. This means the seller retains any cash in the business and repays all outstanding debts before completion.

An additional adjustment is made to ensure there is sufficient working capital in the business after the sale. This ensures the buyer does not need to inject capital to cover short-term operating costs.

Exit options for residential children’s services providers

In recent years, exit options for residential children’s services providers have become more limited as serial consolidators have reduced their acquisition activity. This is largely for three reasons:

1. Many are dealing with their own internal operational issues;

2. There is nervousness amongst investors around the government’s plans to limit or regulate private profits in the sector;

3. Operators are able to grow organically through new home openings, so the desire for more costly acquisitions has decreased.

As a result, many founders have started to consider alternative exit options including debt-funded management buy-outs (MBOs) and employee ownership trust (EOT) transactions.

At Eclipse Corporate Finance, we work closely with founders and operators to help them prepare, position and sell their businesses on the best possible terms. If you are considering your exit options, we would be happy to have a confidential conversation.

Children's Services Sales