Senior Living and Care M&A: Two Worlds

In a report provided by Ziegler investment bank, M&A activity in the non-profit industry segment is “up” for the first half of the year, near record levels. The report suggests the pace will continue into the second half.

Compare this data to report from Levin that deal activity was down significantly in the first quarter of 2023; 33 percent year-over-year and 13% from the fourth quarter of 2022. The reason? High and increasing costs of capital with some scarcity of capital. The higher rates push buyers back and plague deal economics such that, deals that originally were contemplated as accretive become over-priced as rates rose rapidly and dramatically.

What is fascinating is that the data share a tale of two worlds. The Levin data is primarily a reflection of the for-profit and investment world (buyers that are not operators). The Ziegler data is driven by non-profits and populated much heavier with deals that are affiliations or mergers or in some cases, divestitures and outright sales. Some interesting data points from the Ziegler report (SL_ZNEWS_071723 ) are;

• One fourth of the non-profit facilities traditionally transfer to other non-profits. However, Life Plan (CCRCs) tend to remain non-profit unless the transaction is a distress situation.
• Since 2015, 46% of the transactions involving non-profits have been private sector acquisitions (for-profit).
• SNF transactions tend to be 90% (plus), private buyers. Only 10% remain non-profit.
• Since the pandemic and the loss of additional government funds, closures have increased in the non-profit sector.

The Levin report highlights another driver for possible acquisition activity going forward; defaults, with expanding frequency if rates remain high and labor and supply costs, the same.  Providers are having difficulty, especially SNFs and free-standing ALFs, with capital access and rising labor costs.  Reimbursement is not keeping up with inflation and private pay rate increases, where possible, are getting harder to pass-along to cover the rapid rise in labor and commodity costs (energy, food, etc.).  Some points from the Levin report are below.  The report summary is accessible here: https://www.prweb.com/releases/seniors_housing_and_care_m_a_activity_falls_under_100_deals_in_q1_23/prweb19279457.htm

• Of the deals completed, Assisted Living represented the largest share at 42%.  Skilled nursing came next at 32%.  Active adult deals were at 9%, independent living at 7%, and affordable apartments and CCRCs came in at 6% and 4%.
• There were nine deals with 10 or more properties in the transaction and twenty-one comprised of 3 or more properties.  These multi-property deals were primarily comprised of SNFs and senior housing.
• Given capital costs and access issues, equity and all-cash buyers tend to be the most active buyers.