Max Taylor and Adam Scott of Mansfield Advisors explain why you should care about German nursing homes

International chains buy in Germany. Should others do the same? Max Taylor and Adam Scott of Mansfield Advisors provide background on recent activity

The Covid disaster

It is a sobering time about the mundane nature of investment and business opportunities in a sector designed to support and protect the most vulnerable of the age group. It is encouraging to see that Germany has managed to protect its retirement homes better than some other countries. Only 0.4% of residents died from Covid in Germany, compared to 5.3% in the UK.(1) German states have spent heavily to support nursing homes and have temporarily lowered care ratios and other standards to enable providers to cope.

Partly in recognition of the harsh working conditions, from 2022 the minimum wage for people working in the care sector will be €15.40 an hour, around €2.20 more than for others workers.

Market attractiveness

Germany has a high share of private services in the elderly care sector (see Figure 1), although most providers are small. And the demand for this type of care is expected to increase if you look at the demographics. Over the ten years to 2030, the CAGR of the number of people aged 87 and over, the ideal age to need a retirement home, is 4.7%. This cohort is considered to be in need of a place in a care home, as the provision of a substitute home is unlikely to be appropriate.

Yet, as is so often the case, the challenge is to make care pay. Operators are facing relatively low prices from public payers, while cost pressures, particularly on personnel, continue to grow. To help solve the problem, the social care tax has been reduced from 1.95% in 2008 to 3.05% in 2021, so there is a clear payment mechanism.

Nevertheless, despite the obvious challenges faced by investors in nursing homes and the bad press that private equity attracts from local politicians, many players seem to think that German care represents a risk worth taking. .

recent activity

The German nursing home sector has attracted buyers from elsewhere in Europe in recent years, particularly from Italy and above all from France: in October 2021, Domidep (backed by I Squared Capital) acquired Römergarten Senioren-Residenzen (660 beds); in 2019, Charleston (47 sites; 4,050 beds) was sold by EQT Partners to KOS and Primonial REIM; and in 2018 Quadriga Capital sold DOREA (now Dorea Familie (58 sites and 5,500 beds) to Maisons de Famille. Maisons de Famille in acquisition.

The largest company, Korian, recently acquired, but only with a small acquisition in an adjacent market IPDL (Intensivpflegedienst Lebenswert). Alloheim also acquired the Pro Talis Gruppe, which includes nursing homes and apartments with a capacity of 1,100 residents. Alloheim itself, the second largest company with 124 locations, is about to be offered for sale, although it was acquired as recently as 2018 by Nordic Capital. As Nordic normally targets double-digit returns for its funds, this will be an interesting trade to watch.

Belgian REIT Aedifica also made smaller-scale acquisitions, as well as BAE Systems Pension Fund, which has Elevation Advisors as its asset management partner.

The German healing method

After reunification in the 1990s, the redesigned welfare system was to be based on the principle of nationwide social solidarity. A fixed percentage tax paid by all workers is paid into the Long Term Care Insurance Fund (LTCI). This fund helps pay more than 3.4 million people with long-term care needs, some of whom are in more than 10,000 care homes.

To be eligible for care, individuals are independently assessed against six “domains”:

  • The mobility of an individual
  • Cognitive and communicative skills
  • Behavioral and psychological disorders
  • Self-sufficiency
  • Ability to manage health restrictions and requirements
  • Daily social contacts

Individuals are assigned a level of care from 1 to 5, which determines the amount of help they can expect to receive, where they could receive it, and the amount of LTCI contribution – ranging from 5% to 55% of the price. Three quarters of care recipients stay at home and only 30% of this group receive formal care.

Each of the sixteen states has different levels of home versus care home provision.

The moderator ticket is required by the family or its municipality

The LTCI determines a cost of living, including care, for each of the five levels, for the area within each state. For an area with average costs for a Tier 3 need, they might budget €1,700 for monthly child care costs, €500 for housing, and €700 for other living expenses. The LTCI would then pay 45% of this total nominal cost and would therefore pay the care provider €1,300. The rest of the fees must be negotiated and paid by the family. If the family is unable to pay the difference of €900 per month, there is no choice of accommodation and the municipality pays the rest.

Major actors

Most providers operate on a not-for-profit basis and supply around 60% of the market by value. These providers are large independent organisations, including Diakonisches Werk and Caritas, which draw on their Protestant and Catholic backgrounds respectively. Only 5-10% of the market is supplied by municipalities and, to a lesser extent, by the states themselves.

However, many businesses remain small and family owned. While the few existing private channels are much more likely to operate in multiple states and different regions of Germany. The largest private provider is France-based Korian, which has 254 locations across Germany, far more than the second largest, Alloheim. Orpea Group, with 191 housing units, continues to grow through acquisitions, while Pro Seniore remains more stable with 77 establishments.

Variation by state

Prices are regulated at national level, as are profits under Pflegestarkungsgesetz II. This has limited the expansion of enterprise providers. Otherwise, the Federal Reform Act of 2006 returned nursing home regulation to the sixteen states. There is notable variation between states in standards and requirements for equipment, accessibility, and building regulations. Older homes are grandfathered and do not have to comply with newer single room regulations, so these differences apply especially to new builds.

Large independent chains hold a substantial market share in some states and are therefore large enough to be preferred suppliers. The notable presence of FPIs in wealthier states means that there are many propco/opco deals in care homes that leave independent chains only to cover day-to-day operating costs.

There is a clear preponderance of older people in East Germany, thanks to many young people who moved west after reunification in 1990. Some states limit the number of people per dwelling, such as 80 in the Baden-Württemberg and 100 in Berlin.

Where is the love?

Given the challenges in the retirement home sector, the question is: how do we do it right in Germany? To answer this question, consider two companies that seem to have succeeded: market leaders Korian and Alloheim.

Listed on the stock exchange in France, Korian has established itself as the largest player in the German market by being the second player in all of Europe ‒ founded in France with subsidiaries in Spain, Portugal, Belgium, the Netherlands , Poland, Austria, Italy and more. Its investment in Germany has produced steady returns, with the latest figures released from the third quarter of 2021 showing YTD2021 revenue of almost €800 million and an annual increase of around €40 million. But the success in Germany comes from buying up smaller regional channels to build a cross-regional platform. After the acquisition, he also increased the capacity of the existing facilities, upgrading the houses to include assisted living apartments under the same roof (but with a different entrance). This has enabled Korian to offer a more favorable care mix for the elderly German population.

Alloheim was also able to create a significant presence in the right geographies, prosperous German cities – including Hamburg, Dusseldorf and Cologne – but limited its exposure to just one individual state. It has targeted a more affluent population in residential areas where there is greater demand per nursing home bed. He builds new facilities.

Despite a flurry of negative publicity related to the perception of excessive deaths in Covid-related care homes and several failings in facilities management, Nordic remains resolutely focused on Alloheim’s growth, aligning it with the key mission of Nordic consisting of “accelerating growth and”. . . identifying truly transformative angles.

Carlyle paid Star Capital €180m for Alloheim in 2013, its price skyrocketing to around €1bn when it was sold to Nordic in 2017, making it the biggest takeover in the world. German care sector to date.


There is undoubtedly a lot of potential in the German retirement home market, and many potential investors are looking into this space. But the sector should be approached with caution.

Ultimately, the German healthcare market can be navigated with local on-the-ground knowledge of each state and adapting the approach accordingly.

Neither Alloheim nor Korian could have gone off the beaten path and established themselves on a national scale without this type of expertise helping to fuel their growth.

The outlook is positive. The German nursing home market is poised for a slew of acquisitions, new builds and new foreign investors, which will result in new and exciting investment opportunities in this complex care landscape.



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