Information on the Target

Korian is a leading European care services group focused on providing support for elderly and fragile individuals. Established as a significant player in the healthcare industry, Korian has consistently expanded its operations and offerings, now managing a diverse portfolio of facilities, including nursing homes and healthcare clinics across Europe. As of December 2021, Korian reported a real estate strategy that has grown the value of its real estate portfolio to approximately €2.9 billion, signifying robust growth and a commitment to meeting the increasing demand for care services.

The company has recently formed a long-term investment partnership with BAE Systems Pension Funds, advised by Elevation, to further enhance its real estate assets. This collaboration enables Korian to manage a newly created real estate vehicle, consolidating their property assets while continuing to expand their operational framework in a sustainable way.

Industry Overview in the Target’s Specific Country

The long-term care and healthcare sector in Europe is experiencing significant evolution, chiefly driven by an aging population and rising demand for care services. In countries such as France, Germany, and Spain, the need for comprehensive care solutions is increasing, which has prompted investments in both infrastructure and innovative care solutions. The industry has seen ongoing development projects aimed at enhancing service delivery while accommodating the distinctive needs of individuals requiring long-term care.

The investment environment for healthcare services has also improved, with private equity firms and pension funds increasingly allocating capital into this sector. In particular, the market for long-term care facilities is observed to be resilient, offering stable returns due to essential services being provided regardless of economic fluctuations. The demand for quality care facilities is anticipated to remain high, presenting ample opportunities for growth and expansion within the sector.

Regulatory frameworks are adapting to support the expansion of care services, as evidenced by various government initiatives aimed at improving care standards and access. This shift indicates a positive trajectory for investment professionals who are engaged in the health sector, particularly in real estate associated with care services. The trend of consolidation among service providers is also notable as companies aim to leverage economies of scale to optimize operations and profitability.

Consequently, the European healthcare real estate market is expected to thrive over the next decade, characterized by ongoing capital inflow and strategic partnerships that underpin the sector’s sustained development. Korian, with its established position and proactive strategy, is well-placed to capitalize on these favorable industry dynamics.

The Rationale Behind the Deal

The partnership between Korian and BAE Systems Pension Funds represents a strategic move to optimize equity allocation within Korian's real estate investment strategy. By leveraging the combined strength of their portfolios, the two entities aim to enhance the overall value and operational capacity of the healthcare assets involved. The partnership's structure allows Korian to consolidate its existing real estate portfolio while attracting significant investment to facilitate development.

This deal is aligned with Korian's broader objectives of scaling its real estate presence across Europe. With an anticipated gross portfolio value of around €320 million by 2024, the partnership not only enhances Korian's asset base but also supports its growth trajectory in meeting the increasing demand for care services across its operating regions.

Information About the Investor

BAE Systems Pension Funds, known for its diversified investment approach, invests in real estate, infrastructure, alternative, and private market assets globally. This strategic decision showcases their commitment to securing stable revenue streams through investments in essential service sectors. By engaging with Korian, BAE Systems Pension Funds aims to bolster its portfolio with healthcare properties that promise resilience and growth amidst a changing economic landscape.

Elevation, the advisory firm behind this transaction, specializes in healthcare real estate investments and enhances BAE Systems Pension Funds' capabilities in identifying valuable opportunities within the sector. Together, they represent a powerful combination of expertise and capital that can significantly impact the long-term care landscape in Europe.

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This investment partnership between Korian and BAE Systems Pension Funds could be regarded as a prudent strategic maneuver. The ongoing demographic shift towards an aging population necessitates an expanded focus on care services, which makes investments in long-term care facilities particularly appealing. With an asset cap rate of approximately 4.9%, this deal provides attractive investment potential for BAE Systems Pension Funds, especially with a projected annual return of around 4.5%.

Moreover, the structured approach of this partnership, which includes a minimum lock-up period, ensures that both parties are aligned in their commitment to the long-term growth of the partnership. It offers Korian a stable financial foundation to continue developing its real estate portfolio without the pressures of short-term capital challenges.

The deal also allows Korian to demonstrate its capability in leveraging existing assets to raise further equity. This signifies robust financial health and the potential for continuous growth, particularly as the company aims to grow its portfolio to €4 billion by 2023. Given the strength of Korian's operational model and real estate strategy, this investment is likely to yield beneficial outcomes for all stakeholders involved.

Overall, the collaboration between Korian and BAE Systems Pension Funds exhibits considerable investment merit, rooted in a resilient and expanding healthcare market. It presents an opportunity for enhanced portfolio diversification and capital appreciation, emphasizing the attractiveness of investing in essential service industries such as long-term care.

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