Quadrant eyes aged care consolidation

The two investments are united by a growing demand for private sector participation to meet the needs of aging yet affluent populations.

Beyond this, comparisons are not entirely fair. While Summerset offers aged-care services, three quarters of its revenue comes from retirement villages, where it is third-largest operator in New Zealand. Estia, by contrast, is a pure-play aged-care business that currently ranks no higher than sixth in an extremely fragmented Australian sector that has so far seen less integration of retirement accommodation and aged care.

"We will continue to grow the business through brownfield acquisitions and possibly some greenfield, and we will be part of the consolidation that is occurring within the sector," said Marcus Darville, a director at Quadrant. "The sector has been attracting more institutional capital and we think that will continue. There are no indigenous Australian listed companies in the space but we expect that to change as well."

The consolidation dynamic has already attracted other investors. This year Archer Capital acquired Primelife Aged Care from Lend Lease Group, while AMP Capital agreed to sell roughly half of Domain Principal Group to Singapore's G.K. Goh Holdings. Macquarie is also said to be interested in selling part of Regis Group, Australia's second-largest senior care home operator.

Quadrant has committed A$90 million ($87 million) in equity for an approximate two thirds majority stake in Estia, with the enterprise valuation said to be in the region of A$170 million. The principal seller, founder Peter Arvanitis, will retain the remaining one third and continue as CEO.

According to Darville, 60% of Australia's aged-care market is non-profit. The largest single player - either non-profit or for-profit - accounts for less than 5,000 of the 187,000 beds available in the sector as a whole, with top five players have a collective market share of 15% of the market or less. Estia manages 1,100 beds across 10 facilities.

There have been calls for greater deregulation to allow pricing differentiation and facilitate competition but so far this has only stretched to certain ancillary services, while principal accommodation and care charges are controlled. However, the government's "Living Longer Living Better" initiative, which launched last year and is expected to see A$3.7 billion invested in aged care, is seen as a positive step.

Darville believes the expansion of lump sum payments - where care recipients typically pay an accommodation bond on arrival - could prove particularly useful. "The bond is returned to the family when the resident leaves but it can be used to help pay down debt or build new facilities," he said. "It is an interesting way to grow a business."

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