Bupa, the private health group, is to make its first acquisition in aged care in Australia, a market it is targeting for significant growth.

The UK-based group said on Wednesday that it would acquire a controlling stake in DCA Agedcare, the operator of nearly 100 homes in Australia and New Zealand, from CVC Asia Pacific, the private equity group, in a deal valuing the business at A$1.23bn.

Bupa, which runs Australia’s third-largest health fund operation, intends to assume full ownership of the business by buying out management options in the next year.

Macquarie Bank, Babcock & Brown and private equity groups are also understood to have expressed interest in the homes.

The deal will generate significant profits for CVC, which acquired the homes as part of its A$2.7bn takeover of DVC Group last year. At the time, they were independently valued at up to A$860m by Grant Samuel. The private equity group has retained DVC’s core diagnostics business.

The homes, which operate under the Guardian Healthcare and Amity brands, have annual turnover of A$344m and will lift Bupa’s aged care beds globally by 7,000 to 31,300. The UK group, which is increasing its focus on the aged care segment, will fund the deal from cash. Earlier this year it sold its portfolio of UK private hospitals to Cinven for £1.44bn.

It will retain the homes’ existing management and continue to look for further acquisitions in the segment.

“We believe that the marketplace will require further growth and further development, and that will include consolidation as well as new build [of aged care facilities],” Bupa said.

It also remained interested in a merger with MBF, its larger health insurance rival, in a deal that would almost treble the size of its local insurance business. MBF, which is valued at between A$1.7bn and A$2.1bn, has a 19 per cent market share, while Bupa has 10 per cent.

Its initial approach to MBF was rejected, with the fund preferring to continue with its plans to demutualise and list. Bupa said there were no talks with MBF at present but that it was seeking regulatory approval for a potential merger.

“When we have completed the regulatory approvals, we will re-initiate discussions with MBF,” said Richard Bowden, managing director of Bupa Australia. “Bupa has made it very clear that it wants to grow in the Australian market place.”

The Australian government has encouraged the rapid growth of private health insurance by imposing a levy on those that rely solely on the state Medicare system. As a result, some 44 per cent of Australians now have private insurance to cover hospital care.