Lavan recently had the opportunity to analyse the top 1000 NDIS Plan and Agency Managed Billers among registered providers in the financial year 22/23.
Our view is that there is a high likelihood of increased exits at the smaller end of the market as the Commission becomes more aggressive and margins get squeezed as part of the ongoing NDIS reform. This presents a clear opportunity for organisations in the $30m(+) range to get the scale they need for sustainability. The sector overwhelmingly comprises small players with the bulk of registered providers servicing agency and plan managed participants (62%) billing less than $10 million. This number would appear to support the explosion in small providers over the past five years as demographics which traditionally worked in the disability sector in supporting roles moved to leverage their skills by setting up their own businesses.
Whilst not unexpected, the dramatic reduction in the number of providers operating above $10 million and even above $30 million reflects the difficulties of scaling under the current NDIS pricing model and regulatory framework. That is, as organisations grow in size, further professionalisation, systems and layers of management are required, pushing the boundaries of what is possible for many of the smaller organisations, particularly in the face of a lack of capital. For example, only 27% of registered providers were sitting in the $10 million to $30 million range and only 8.6% of providers were sitting in the $30m to $100m range.
Further, as revenue increases, private providers drop off rapidly with the majority of providers billing over $50 million being ‘not-for-profits’. Their overrepresentation in the NDIS at this level may come down to;
There are only 14 providers across Australia (less than 2% of the top 1000 billers) which brought in over $100 million in plan and agency manage revenue in 22/23. These are generally large multi-state organisations. Only one of them is a ‘for-profit’ organisation, the rest are ‘not-for-profits’. Perhaps this demonstrates that the higher cost burden associated with scale makes it uneconomic to deliver NDIS services under the present pricing model at this level?
A key takeaway from the above analysis is the likelihood of increased exits at the smaller end of the market as the Commission becomes more aggressive and margins get squeezed as part of the ongoing NDIS reform. It also presents a clear opportunity for organisations in that $30m(+) range to get the scale they need for sustainability. It also signals that now may be a good time for providers in the $10 million - $30 million range to capitalise and consider an exit.
Finally, where not-for-profits are considering acquisition of like-minded not-for-profits with an aligned mission and ethos then there is potential for acquiring at nil or very limited value (again a factor in explaining why the top of the market is dominated by not-for-profits).
To discuss how Lavan may be able to help your organisation grow or adapt to changing market conditions contact Amber Crosthwaite on 0400 143 677.
Thanks to Andreas Geronimos, solicitor at Lavan, for his contribution to this update.
