Future of Aged Care: What to expect for aged care deals in 2023
17 January 2023
Managing operations and financial profitability for residential and in-home aged care providers continues to be challenging. Although the recent legislative changes are intended to uplift performance by addressing issues identified during the Royal Commission, there will be further implications. The finance and governance requirements for aged care service providers have been enhanced to ensure better compliance and standards but this places increased obligations on providers. The extent of the changes may initially be challenging for some operators, particularly small, regional and community providers.
We expect the trend of smaller providers “handing in the keys” by closing or selling their facilities may continue. Smaller providers’ strategies will likely include joining larger groups. Such operators may need assistance in making their operations more attractive and can achieve this by addressing operating and capital shortcomings as well as solving legacy financing arrangements that may no longer be suitable for the new aged care operating model.
There are many providers facing solvency challenges where closure is not an option due to significant unfunded RAD balances and are not saleable because of insufficient or inefficient systems, and the age of their real property and equipment. This is a very uncomfortable position for the board of such a facility as it has very limited options other than an insolvent closure to manage insolvency risk. An insolvency appointment of an aged care provider can be very stressful for residents and their families, especially in regional locations and needs to be managed very carefully.
We expect larger and metro providers will continue to be better off under the new legislation. We have seen these providers are more open to acquisitions of well-functioning smaller operators. The scale and pace of these transactions has slowed since 2021 and is hampered by the challenging financial conditions and limited available staff to affect the integration of the transactions.