Paul Moran, the Bank of Ireland’s Head of Healthcare, looks at the trends and opportunities ahead in healthcare and how the bank plans to respond.

Bank of Ireland has been providing funding to the healthcare sector for over

15 years and has a strong reputation as perhaps the most experienced and knowledgeable provider in the market. Here, Paul Moran, the bank’s Head of Healthcare, looks at the trends and opportunities ahead and how Bank of Ireland is planning to respond.

Money is flooding into the healthcare sector as businesses recognise the scope of the market and, according to Moran, it is down to providers like Bank of Ireland to track the market and be innovative with product development so that they can respond appropriately. With only 460,000 long-term care beds currently available in the UK and experts predicting that this needs to rise to 650,000 over the next 15 years, demand is outstripping supply and has strongly driven values in the market.

Further, Moran believes that meeting the demand for long-term care beds cannot realistically be achieved, citing the fact that development activity lacks the pace necessary to meet targets, particularly because land is both rare and expensive, and government policy is directed towards encouraging self-funding.

The net result is that trends in the industry are veering towards increasingly Œcomplex’ domiciliary care, which means keeping people at home for longer, rather than investing in costly residential care for the elderly. And this is driving the market to look more closely at the concept of assisted living as the way forward.

It’s an area that Moran and Bank of Ireland are particularly familiar with ­ the bank is a leading finance provider for such projects and Moran believes that this will be the fastest growing market in healthcare over the next few years. “The statistics are compelling,” he says. “The economic fundamentals remain sound, the political climate remains benign and the demographics speak for themselves.”

The assisted living concept is commonplace in the US, but still relatively new here. However, as the public’s awareness of its benefits escalates, this will change. Living units (houses, apartments etc) in care villages offer people the ability to continue owning their own home, ensuring that they still have a legacy to pass onto their loved ones, whilst offering the reassurance that care facilities are available if and when they are needed.

Combine this with the fact that residents can retain their independence within a secure Œcampus-style’ environment ­ and it’s easy to see that assisted living offers a much more attractive alternative to the residential or nursing home scenario that once was the only option for our ageing parents.

Consequently, units in the few existing assisted living villages available in the UK are selling at a premium, the demand for development loans for new build projects is huge and there’s a rush to acquire suitable land. And as this market matures, for rent schemes as well as for sale schemes will emerge. In time Moran believes there will also be an active market in residual income trading, although realistically this is still three to five years away.

However, development activity in the area of assisted living is being accelerated due to strong sales and the bank is also seeing increased interest from traditional elderly care operators looking to develop close care units adjacent to new nursing homes.

“What we are seeing in the healthcare sector is a classic example of a maturing market in a western economy,” he says. “It’s already happened in the United States, Australia and New Zealand. We just have some catching up to do.” Certainly, there are plenty of businesses out there keen to get on the bandwagon and those that do their sums carefully will undoubtedly prosper.

While Moran sees assisted living as a key influence in shaping the development of the healthcare market in the coming years, other factors are also at work and the sector continues to be dynamic. In the main, the changes are positive, offering higher quality facilities and greater choices to people as their needs change.

The domiciliary care market has transformed in recent years and a much broader range of services are now delivered ­ some of which are quite complex, with local authorities and social services now increasingly likely to invite private companies to tender to deliver domiciliary services on their behalf.

Moran believes that this outsourcing will continue to be a feature of NHS operations, but with increased demand for better value from the private sector, competition will intensify while we as individuals are left to ponder on the implications that changes in the delivery of healthcare may have on our future lifestyles.

Corporate activity is likely to continue apace as the market further consolidates. However, a series of interest rate rises in the past year and latterly the credit squeeze in world markets is having an effect. There is clear evidence that valuation and purchase multiples have contracted in recent months. In Moran’s view this is no bad thing.

“We have seen a series of increasingly leveraged debt laden transactions where the underpinning profit assumptions will be difficult to sustain in a medium term,” he says. In particular the specialist mental health market has seen strong growth and there is evidence of increased competition between the main operators.

The elderly care market also remains robust for the same reasons, with the number of new start developments increasing by around 15% year on year and values now allowing direct competition with the residential sector.

Increasingly, healthcare is being used by larger residential developers to unlock planning obstacles in larger land banks.

M&A activity, whilst not as heady as 2005, remains solid, and there are weekly announcements of acquisitions at all levels, as sector consolidation continues.

Certainly, healthcare remains a strong growth sector for Bank of Ireland and its specialist teams continue to support the market. Activity is broad-based across the UK and the Bank’s teams are all regionally placed so that they can combine their local knowledge with their specialist understanding of the sector. As activity continues to increase, the Bank is actively seeking to recruit additional experts to strengthen the teams and support growth.

Moran believes that Bank of Ireland principal-to-principal approach, combined with its specialised and in-depth understanding of the market is what helps the Bank maintain its position as one of the principle funders within the sector and sees little likelihood of change in the future. “While activity within the sector remains strong, Bank of Ireland will be there to support it,” he says.