Australian home care sector consolidation set to surge in run-up to new government program – Mergermarket
Henslow were recently quoted on the home care sector. See below the full Mergermarket article providing recent news.
Australian home care sector consolidation set to surge in run-up to new government program – Mergermarket
- Declining profitability to intensify pressure
- Larger players to seek acquisitions to build scale
- More difficult for smaller players to compete
Consolidation in Australia’s home care sector is set to surge in the run-up to the new bipartisan Support at Home program, worth AUD 4.5bn (USD 3bn) in government funding, due to be phased in the next year, according to sector experts polled by Mergermarket.
From 1 July 2025, the new program will replace the existing Home Care Packages and Short-term Restorative Care programs, while the Commonwealth Home Support Program will transition to the new program by 1 July 2027, as announced last month (12 September).
The new program, which aims to provide more care to more people under a simpler, fairer and more integrated system, also comes with new regulations including new fixed pricing, removal of fees, more complex grandfathering and co-contribution arrangements, and a more stringent auditing regime.
This will make it even more difficult for smaller players to compete, while larger players will be on the look-out for acquisitions to continue building scale and expanding their service offerings, said Kylie Magrath, CEO and MD of home care services providers Hazel Home Care and Dulcie Home Care.
Not-for-profit home care specialist Silverchain, for one, has acted early and is now the third largest home care services provider following its purchase of Kincare from MA Financial Group [ASX:MAF] this July for an undisclosed sum.
Home care providers have already been facing declining profitability with only 68% being profitable in 2022-23, according to a KPMG report, with a report in the Weekly Source last week (10 October) revealing that margins are continuing to thin.
Those that can’t secure the investment necessary to deal with these changes will be under increasing pressure to exit, Scott McInnes, a managing director and co-founder of Melbourne-based corporate advisory firm Henslow, told Mergermarket.
While players in the small to mid-market space with some scale will no doubt be in the sights of potential buyers, some have their own aggressive growth strategies with Afea (now renamed Leora), and Henslow clients Prestige Inhome Care and Absolute Care & Health, all telling Mergermarket recently that they are looking to accelerate scale with acquisitions.
Hazel Home Care and Dulcie Home Care would likely also be attractive to players looking for scale, but they are focused on their own growth at this point, primarily organically but potentially through acquisitions that “make sense”, Magrath noted, without elaborating.
Stage set for heightened PE activity
The stage is set for heightened private equity (PE) activity, according to sector experts and McInnes, whose firm is set to bring another unnamed National Disability Insurance Scheme (NDIS)-supported independent living and home care provider to market, “further underscoring the expected surge in M&A”.
We can expect to see more roll-up plays similar to Quadrant’s roll-up of home care services providers that resulted in the creation of MyHomeCare Group, which was sold this February for AUD 285m to Australian Unity, making it Australia’s largest home care provider, McInnes noted.
Crescent Capital is certainly putting its money in the sector having established a single-asset continuation vehicle for workforce solutions and acquiring direct care services provider Healthcare Australia (HCA) in January 2021 for an undisclosed sum. May this year saw the company acquiring South Australian family-owned home care provider My Care Solution for an undisclosed sum, as reported.
So too is Fortitude Investment Partners, which took a majority stake in aged and disability placement services group Aged Care Decisions in 2023 for an undisclosed sum and told Mergermarket in 2023 that the company was in the market for acquisitions.
Also in 2023, buyout group Navis Capital took a majority stake in Caring Group, which operates in-home care brands including Home Caring, Dementia Caring, and Premier Care, and is one of the largest providers of in-home and complex clinical care, as announced. The deal value was not disclosed.
With technology now seen as an essential enabler in the space, platform providers facilitating self-managed care could also be targets for PE firms, as well as for traditional players looking to beef up their tech capability, said Marissa Sandler, co-founder of Careseekers, a pioneer in the tech-enabled platform space.
Companies like Careseekers are in a good position to attract investment, as technology creates efficiencies and allows services to be provided at scale, Sandler told Mergermarket.
Mable, another pioneer in the space, received an AUD 100m investment from global PE firm General Atlantic in 2021, as reported. Pemba Capital Partners is building a platform in the disability care space, having invested in ONCALL in 2020, Ablecare in 2021, and SACARE in 2022, while 2021 saw EQT taking a minority stake in Five Good Friends, as reported.
Scope for M&A with adjacent sectors
Along with the need to deal with impending changes, increasing demand for expanded and integrated service offerings that can keep patients out of hospitals for longer also creates scope for M&A between home care services providers and providers in adjacent service sectors, noted Danielle Robertson, founder of DR Care Solutions, which links providers with customers.
Providers will need to work out what services they want to deliver under the new model and allied health organisations will be hot acquisition targets, agreed Dulcie and Hazel’s Magrath. As the government will pay 100% of allied health services under the new program, there will be more demand for these services, Magrath elaborated.
Many home care providers are already moving into the home health space with Hospital in the Home (HITH) services, which is a natural progression, even for non-clinical care, while many allied health providers like physios, dieticians, nutritionists, and speech therapists are working closely with home care providers, Dr Care Solutions’ Robertson said.
Some players already offer both home care and allied healthcare services, such as Zenitas Healthcare, which was taken private via an AUD 122m scheme of arrangement by French PE firm Unigestion SA in a bidding consortium with Australian PE firms Adamantem Capital and Liverpool Partners in 2018.
Genesis Capital also has exposure to both sectors, having taken a majority stake in home care provider General Homecare in 2020 and in allied health company Therapy Pro in 2021 for undisclosed sums.
While Henslow’s McInnes believes that PE firms with home care services assets are most likely to be in buy mode at this time, once these assets reach enough scale, they could well see exits to a large group of potential acquirers.
We could see exits in secondary deals to larger PEs, including offshore-based parties; to allied health care groups looking to broaden their services; or to hospital groups in their push to keep patients out of hospital for as long as possible, McInnes said.
by Louise Weihart in Sydney (Mergermarkets, published 17 October 2024)
