The re-entry of private equity firms, new foreign investors and the continued expansion of existing operators are three factors driving the biggest wave of investment activity and consolidation in the aged care sector’s history, according to a financial expert.
Cam Ansell, director of Ansell Strategic, said that industry activity is now increasing faster than the pre-GFC period and acquisitions, both small and large, are on the rise.
“The number of facilities being sold is more than I have seen in 20 years in aged care,” he told Australian Ageing Agenda. “We have sold just under 30 nursing homes in the last 12 months, and I would say I have probably sold six or seven in the 15 years before that.”
Since 2010, around 17, 000 aged care beds have changed hands, according to a review of facility ownership conducted by Ansell Strategic in April. This represents almost 10 per cent of the sector.
There has been a rapid fall in the number of single-facility and small operators, often family-owned businesses, and the exodus of local and state governments from the aged care market has continued in recent years.
In the not-for-profit sector, providers such as ECH have also decided to exit residential care to focus on community care and retirement living.
While major for-profit operators such as Regis, Blue Cross and McKenzie Aged Care have been actively acquiring new facilities, large not-for-profit providers such as Mercy Health and Calvary have also been on the expansion trail, Mr Ansell said.
“Others that we have sold or selling to are private entities looking to list or have listed,” he said.
While private sector operators have dominated acquisitions in the last two years, Mr Ansell said Australia is unlikely to follow the path of New Zealand, UK and the US where large private groups dominate the residential market.
“In Australia there are some strong not-for-profit organisations that are able to mix it with the big privates and do it as well and in some cases better. I don’t think not-for-profits will be wiped out and I also think there is a good place for small and niche providers as well.”
A recent Ansell Strategic report said reform experiences internationally have shown that the move toward more consumer directed, user pay environments has attracted greater private sector investment and competition. However, Mr Ansell said niche operators that are innovative and flexible could also thrive in a competitive, less regulated environment.
Mr Ansell said as private sector investment grows, including interest from foreign investors and superannuation funds, government accountability to a wider and more powerful range of stakeholders would also increase.
“At the moment we have around 1,000 providers. In the future we will have quite a wide investment base, so if the government is thinking of doing something like withdrawing the payroll tax supplement, they are going to have a broader range of aggrieved parties to deal with and they will think about it a little more before they change policy or before they introduce new policy that might not be in the best interests of the sector,” he said.
“The power of these large entities in the US and New Zealand is not something the bureaucrats or the government has been used to in Australia so far.”
Echoing Mr Ansell’s comments, the Aged Care Funding Authority’s recently held roundtables with investors and financiers similarly concluded there was strong investor interest in the sector.
ACFA reported that some investors saw an opportunity to build profitable businesses through scale. However, some investors were wary of sovereign risk issues and reported that availability of land for greenfield developments was challenging.
Some investors were also looking for opportunities to invest in the property side of the business, without taking on the risks of operations.
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Signs of the times
Investor appetite and sector consolidation:
- Singapore investment company G. K. Goh Holdings Limited completed a $136.7 million investment in the Domain Principal Group (since renamed Opal Aged Care) in August 2013. This investment represented a 47.6 per cent stake in the company. In July 2014, Opal Aged Care acquired Stockland’s aged care portfolio of four facilities.
- $450 million public float of Japara in April 2014, which is to be followed by Regis, which will begin trading shares on 14 October.
- New private equity investors Archer Capital and Quadrant entered the market last year. Archer Capital acquired Allity in March 2013, which has expanded to become Australia’s 4th largest private provider. Allity purchased 10 aged care services from ECH in South Australia in May 2014.
- Quadrant paid $90 million in October 2013 for a majority stake in Estia Health. It has since purchased Padman Health Care and Cook Care Group, which it plans to merge into one 3,000-bed provider.
- Regis acquired Tiwi Residential Care Centre in Darwin in August 2014 from ECH.