Eric Corbier, Managing Director of Sinequanon, is trying to create one of the largest Italian care home group, from scratch, with DS Care. We interview him about how and why, and about the care home market in Italy, Germany and France.

HCE: Tell me about DS Care and your plans.

EC: The aim is to build a care home group in Italy and Germany, with 3,000-4,000 beds by 2012. Most of that is likely to be in Italy.

Sinequanon is the operating company, and our partners are Luxempart and DEFI Gestion. Sinequanon has Daniel Caille as Chief Executive; he is the Non-executive Chairman of Domusiv, the fourth largest care home group in France, and former CEO at General de Sante.

We have invested a total of €28m so far, which should be enough to grow DS Care to 1,000 beds. We hope to then raise more – probably another €50m for Italy and maybe a further €70m for Germany. Our aim is to grow by acquiring small operators.

HCE: What is the attraction of Italy?

EC: Germany is more complicated and less protected. In France and Italy, you have the tripartite convention - between the private operator, the region and the state. You need authorisation from the Health Ministry and a licence from the region, and then you can get funds from the local region.

In Italy, we have found a strong management team in our first acquisitions. In Germany, care home operators want to sell and then quit. In Italy, there are also a limited number of licences for care homes, so supply is restricted. Germany is less protected. However, it is a bit more difficult in Italy to do sale and leaseback – we don’t want the properties. We have also found that smaller German care homes tend to be of variable quality, which can be a problem.

HCE: So does Italy mean higher profits?

EC: Yes. It is much more complicated to make money in Germany from care homes. I think it is a difference of about 10 percentage points.

In Italy, we are averaging 35% EBITDA after paying rent. I’d say the average in Lombardy is 30%, and the good companes in France, like Medica and Orpea, can also achieve that. In Germany, only a company like the market leader, Curanum, can manage 30%.

HCE: How do the markets differ?

EC: France and Germany are much more consolidated than Italy. You can get an idea of the scale if I tell you that the largest care home operator in Italy is Holding Sanità e Servizi, run by De Benedetti’s CIR, with 3,000-4,000 beds. The biggest in France is Orpea, with 20,000. We couldn’t build a group like this in France any more.

HCE: Tell me about your Italian strategy.

EC: We are focusing on the 85 plus age group, who need quite a lot of attention: really end-of-life care. So far, we are only operating in Lombardy.

The thing to realise about Italy, is that each region is very different. Lombardy is by far the richest. In fact, it has half of all the 150,000 care home beds in Italy. Because of its wealth, Lombardy can pay around 30% on average of the cost of the bed, and there are a lot of reasonably wealthy individuals and families who can afford the €75-€80 a day fee we charge on top of the state subsidy.

We are also interested in Veneto and Emilo Romagna. Piedmont is less interesting, as the region pays for the individual rather than the bed and is quite bureaucratic, so you can get long delays. We aren’t interested in the south.

You have to maintain quality; everyone knows if you are not doing well, and then you will lose out. But the state works well with the private sector in Lombardy. The state acute beds cost €500 a day, so they are keen to move people on. Obviously you need to demonstrate that quality, and we aim to be 30% better than regulatory requirements. We are now developing a series of complementary services, such as physiotherapy and so on.

HCE: Has the recession had an impact?

EC: That’s what I ask my team all the time! On the demand side, so far the answer is 'no'. And there is a lot of demand, because there are a limited number of beds. Last year, we lost a third of our customers and still achieved a 98% occupancy rate.

HCE: And are care home prices falling?

EC: Yes, prices are falling everywhere as EBITDA multiples are falling. Generally speaking, prices are highest in France, then Italy and then Germany.  Spanish prices are the lowest, as the operators are construction companies, who have been badly hit by the credit crisis. You also see this with the big groups; Korian was on 17 times in June 2008, and is now not even on 12 times.