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Overcoming pandemic stress is attracting investment to the healthcare sector…

Mike Gascoigne, Head of Healthcare, and Jonathan Thompson, Senior Director of Healthcare, have commented on the current conditions of the healthcare marketplace post-pandemic.

With delta variant cases on the rise, it may still be too soon to fully take stock on the past 18 months. However, the impact of mass vaccination is significantly reducing the link between infection, hospitalisation and deaths, which offers some room for optimism for life returning to a new normal as we have past ‘Freedom Day’.

Without doubt, the healthcare sector has been hit hard, and if not for the skill and agility of operators reacting quickly and taking appropriate measures to protect residents and staff at the height of the crisis, many more lives could have been lost.

After the initial COVID wave hit the sector, strong financial support from local and central government has ensured that we approach the start of a post-COVID era with a sector largely intact, having once again demonstrated its resilience – this time in the face of an unprecedented crisis.

This strength and resilience are amongst the key reasons why the sector continues to attract investment, as the markets look to the relative safety of a home that is underpinned by a real estate asset class, strong demographics and what is now regarded as an essential national service.

A time ripe for investment and expansion

There is now also a swell of new and available finance available to suit different stages of a business’s lifecycle.

The financial market in healthcare has changed beyond all recognition over the last decade. Traditionally, most of the funding was provided by the high street banks, but the opportunities within the sector have resulted in a proliferation of new entrants, with MAF currently working with over 40 funders, as well as several REIT investors and private equity firms.

These niche funders offer numerous alternatives to the more traditional financing options by providing a range of different investment options, from the more traditional merger and acquisitions (M&A) and development funding to various types of management and operational lease arrangements.

As the funding market has expanded, it has become increasingly difficult for care operators to keep track of, or even understand, all the potential sources of finance that are available to help them with their future growth plans – whether that is through acquisitions or the developments of new purpose-built homes.

We see this as a crucial role that brokers like MAF can play to ensure that operators can concentrate on delivering high quality care whilst developing the growth strategy for their group. From a standing start in November 2019, despite the impact of COVID, we have had facilities of £88m agreed and drawn and are currently working on proposals totalling in excess of £250m – showing that the sector continues to remain very active.

M&A activity

Year-on-year global M&A activity for healthcare in Q1 2021 registered 608% growth in the size of deal, according to GlobalData. The research also found that pharma recorded the highest year-on-year growth in volume of deals across all sectors, demonstrating that it is not just lenders that are investing, but companies looking to expand too.

This is a trend we have observed in our work across the UK within the care, dental, pharma and other healthcare sectors. We have also seen that this rapid increase in M&A activity within the sector has only been exacerbated by company owners looking to exit and retire early after the health crisis has changed their outlook on life.

With these ingredients, the recipe for M&A suits the tastebuds of both sides of the deal. There is cash available to purchase, a willingness to expand and parties actively looking to exit, meaning that M&A activity is unlikely to stop in the short term. The question for those able to invest is whether now is the time to take the leap before opportunities get snapped up by competitors.

Moving forward into a period of promise

Occupancy fell from a pre-pandemic average of circa 88% to below 80% early in 2021, but we have seen a steady improvement through Q1 and Q2 and are confident that it will continue to improve throughout the remainder of this year and into 2022. This increase will result in ensuring that the increased confidence of resident families boosted by the vaccine programme, improved protocols/infrastructure within homes and widespread testing is maintained.

One benefit that resulted from the pandemic is an increased staffing pool, with people previously being employed in retail, hospitality and leisure looking to the care sector for jobs. It is now important that as the economy starts to open up, careers in care are made as attractive as possible to ensure that these new recruits remain within the sector.

We remain hugely positive about the healthcare sector going forward and remain keen to support operators, as continued investment contributes significantly to further improvements in care standards, job creation and the stimulation of local businesses, which in turn will benefit the wider economy. However, there are certain key areas that need continued focus to ensure that the sector continues to grow.

The key aim for us is to build close relationships with our clients so that we can provide all the support needed to help with the growth of their business by delivering access to the full spectrum of funding solutions across the entire marketplace.

While there is no doubt that there will be further challenges moving forward – not just from COVID, but the more traditional issues, such as the ‘who’ and ‘how’ care should be funded, fee levels and regulation – the future remains positive for both social care and the wider healthcare sector.

Hopefully, the next few months can offer an opportunity to decompress a little after a hugely stressful 18 months. Safe in the knowledge that operators can move forward with increased confidence having demonstrated to the wider population what many of us working in the sector have known for some time – that it is underpinned by operators and staff that are highly skilled, innovative, and resilient.

This has created the foundation that is attractive to outside investment and is why the wider funding market is ready to further increase its support of the sector.

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