Transactional trends in the aged care sector

This is primarily driven by the lack of certainty from policy makers regarding funding of the aged care sector.

Policy makers estimate that tens of billions of dollars a year are needed to keep pace with demand, customer expectations and keeping up with workforce challenges. Funding that’s not readily available from the Government’s purse could be a green flag for investors looking to attach themselves to growth markets.

Trends we’re seeing in the sector include:

Exit: Not-for-profits and Councils divesting

• Some for-purpose, not-for-profit (faith and charity) based providers as well as Council or Shire owned facilities are finding it difficult to navigate the uncertainty in the current market. Redirecting funds to other services they provide to the community, to deliver on their mission, is creating opportunities for bigger organisations (private and NFP) to increase their footprint.

Growth: Scale is the name of the game

• Alongside the divestment trend, we are seeing increased propensity for subscale organisations considering mergers in order to create scale. Whilst no money is exchanged, these transactions come with their own set of nuances and complications, driven mainly by limitations within the incorporations’ constitution.
• The ever increasing cost of doing business and the back office support required to meet governance, compliance and reporting regimes means a minimum number of residential aged care places are required to operate at optimum levels. Larger providers are looking to grow, and grow quickly, in order to gain economies of scale.

Transaction readiness

Regardless of which side of the deal table you are on, transaction readiness is the ticket to successful execution and completion.

The aged care sector is not for the faint hearted. It comes with its own industry jargon and complexity. RADs, DAPs, ACFI (which will become a thing of the past under a new funding model), probate, payroll tax relief, unannounced audits (risk of sanctions due to deemed non-compliance), complex EBAs (risk of underpayment), workforce challenges, skill shortages exacerbated by the lack of border mobility due to COVID, outdated technology, poor system integration and catch up spending, are all considerations buyers and sellers will need to address during due diligence.

We anticipate more activity over the next two to three years as the recommendations from the Royal Commission continue to be implemented and aged care providers shore up their offering in the marketplace. It can be somewhat volatile, however the demand and opportunity is there for savvy providers and investors with a strong value proposition. For those looking to transact, this is the time to review your business to ensure you’re ready when the right opportunity arises or to proactively seek out investment opportunities.

Grant Thornton is well placed to assist you in this regard offering a seamless one-stop service for all your aged care specific transaction support.