A combination of demographic change, rising household wealth among retirees and shifting consumer preferences are driving strong demand for care services that allow older people to remain in their own homes for longer.
While institutional elderly care attracts significant investment attention, Louisa Chaves, partner in L.E.K.’s Healthcare Services practice, tells Investors in Healthcare she believes that one of the most compelling opportunities for investors may lie in privately funded home care services to the elderly.
Investors in Healthcare: Why is private-pay home care to the elderly becoming such an interesting investment theme?
Louisa Chaves: Strong demographic and societal changes are the major drivers behind demand.
Firstly, the ‘baby boomer’ generation now entering retirement has accumulated significant wealth through housing and asset appreciation, pensions and savings. At the same time, people overwhelmingly prefer to remain in their own homes rather than move into care facilities. They would rather stay at home and remain independent but with societal changes, the traditional family-and-friends network – historically a big source of support – may not be there to care for them.
Many people of that generation have the means to pay for support and fund care privately, and that is driving demand for services that provide support at home, all the way through from companionship or light assistance to personal care as support requirements increase.
IIH: Is demand currently being met?
LC: Demand is not the issue – providers consistently tell us they could grow faster if they had the workforce.
Operational capacity, particularly the availability of carers in the right locations, is often the constraint rather than customer demand.
IIH: Workforce shortages have been a major challenge in the sector. How are providers managing that?
LC: Recruitment remains critical. It has been less of an issue over the last five or six years but because of immigration and visa rules that is changing and that is a concern.
Nevertheless, the leading operators have been able to grow by paying above minimum wage to attract workers from the hospitality or retail sectors. They have also been investing more in workforce support and training.
It’s also important to recognise that the workforce is not homogeneous, and while some workers will move between sectors, others view caring as a long-term career. The best providers focus on attracting and retaining those individuals by making sure that they are valued. That is the key to winning.
IIH: Is the market consolidating?
LC: It remains highly fragmented. There are many small providers and even some unregulated carers operating locally. Even so, we don’t really see much in the way of buy and build in this market. The larger operators are generally expanding through organic branch rollouts rather than acquisitions as greenfield expansion often offers better returns than acquiring smaller operators, particularly given the uncertain sustainability of acquired client bases and workforce.
Franchise models are also common, particularly among major brands.
IIH: What role could technology play in the future?
LC: Technology is likely to become increasingly important.
Today most providers focus on delivering care services, but over time there may be opportunities to develop broader platforms around elderly support. For example, home care providers could become intermediaries connecting elderly customers with a wider range of services such as remote monitoring, healthcare services or household services.
That opportunity is still emerging in the UK but is more developed in some international markets.
IIH: Where are investors currently focusing?
LC: Investors are increasingly targeting established home care platforms.
Several private equity investors have already backed providers in this segment because it offers exposure to strong demographic growth and a consumer-funded model.
There is also a second investment angle – backing technology providers supporting home care delivery, which could become increasingly important as the sector digitises.
