Private equity interest has been reignited, but remains frustrated by the lack of decent management teams. It is not hard to see the attraction of care homes. The number of 85s in Western Europe is expected to almost treble by 2050 leading to big increases in demand. Alzheimer and Alzheimer like sufferers are expected to rise 50% to 1.2m in France by 2020. Hikes are particularly likely in southern Europe which has historically been adverse to the idea of care homes. Today in Italy only 2.7% of those over 65 live in specialised facilities compared to 5.4% for the UK and 6.1% for France. Yet Italy has approximately 12 million people aged over 65 compared with approximately 10.7 million in France. Growth rates are impressive. We were told that over the last 4-5 years the Spanish market was growing at 7-8% per annum for residential care and 15% for domiciliary. Growth elsewhere is much lower – 2% in France and maybe 3% in Germany.
Yet older people does not necessarily equate to more care beds. Stephane Pichon at Your Care Consulting in France says: “states will not be able to afford this burden. There will have to be other solutions involving remote monitoring.”
France – tougher times ahead
French operators are bracing themselves for changes which are likely to mean lower margins and lower prices. Today an operator can propose a new care home to a region and then set the prices for incomers. Under the new Loi Hôpital Patient Santé Territoire which will come in this autumn it is the regions, not the care home operators, who propose where new homes are needed. This will be followed by a competitive tender, in which the proposed price charged to patients will be examined carefully.
Average prices are likely to drop, says Stephane Pichon. Korian, one of the big operators is preparing a new range at €60 a day down from an average of €75.
The big players have been able to build or renovate and build big pipelines of future business. Nor are margins bad. Pichon puts the average at 25% but says that a full renovated asset can make 30-40% EBITDAR.
Pichon says the new law is likely to lead to a change of strategy from operators.
“It means more acquisitions within the sector and a lot of diversification.” Orpea and Korian are already get 30% or so of their sales from psychiatric and rehab and this could increase.
International private equity is currently absent from the market following BC Partners flotation of Medica, but Pichon says most of the smaller operators have backing from small private equity or family offices. Insurers like the sector and are big investors in the listed groups.
This means residents tend to be really ill and typically last just 18 months.
Stephane Pichon, a French observer says: “It is much more medicalised than France and many homes have kit like dialysis – the sector is more mixed.”
Of the big six groups, half are subsidiaries of the three French giants and La Villa is half French and half Italian.