Australian aged care industry primed for a private equity clean-up

Like it or not, there are not many markets which are as primed for private equity in Australia as the aged care sector. However, while its reputation is mixed, the influx of private capital can have positive effects on companies and consumers, particularly if a market is struggling. 

Like it or not, there are not many markets which are as primed for private equity in Australia as the aged care sector. However, while its reputation is mixed, the influx of private capital can have positive effects on companies and consumers, particularly if a market is struggling. 

There are a number of reasons why the aged care sector may be high on the priority list for savvy investors and innovators.

First, Australia’s grey economy is large and growing. It is projected that the number of Australians aged 85 years and over will increase from 515,700 in 2018–19 (2.0% of the Australian population) to more than 1.5 million by 2058 (3.7% of the population). This typically leads to a structural increase in demand for aged care and related services.

Second, the market is fragmented. There are over 700 aged care providers in the Australian market, and private equity loves a ‘roll-up’ as they call consolidating a fragmented industry by buying small players into a larger and leaner operation that trades at higher multiples than the small fish. Other than creating profits for investors, this can have consumer benefits by removing the intransparency and inconsistencies of a fragmented ecosystem.

Third, the market needs fixing. One unfortunate side effect of the market’s fragmentation were the numerous scandals that resulted from the lack of oversight and transparency which ultimately led to the Royal Commission. The 148 recommendations subsequently handed down showed that there is a lot to be done to improve the consumer experience. And where there is room for improvement, savvy PE investors smell growth and margin potential.

So, it’s not all as bad as it sounds. After all, by putting their money where their mouth is, private equity investors may be  incentivised to create a service that has satisfied customers and regulators.

But where does this leave Aussie investors? As PE wades in, options to get exposure become increasingly limited, especially in ASX-listed equities. One of the last two remaining on the provider side, Estia Health Limited (ASX: EHE) was just snapped up by private equity giant Bain Capital in a deal that valued Estia’s equity at $959 million.

Through our referral network, Reach Markets are constantly monitoring the market for new investment opportunities, and this sector has caught our attention. So stay tuned.

If you are interested in future investment opportunities in the aged care tech industry, register your interest and we will keep you updated.

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