M&A the Top Growth Strategy for Senior Housing in 2013

Mergers and acquisitions is the way to go for growth in 2013, according to a GE Capital Healthcare Financial Services survey of senior housing and care industry executives.

Two-thirds (66%) named mergers and acquisitions as their primary growth strategy in 2013, while 27% plan to grow organically by upgrading and repositioning existing properties. 

“Despite lingering uncertainty regarding reimbursement and economic volatility, senior housing and care executives remain optimistic about their industry and are seeing areas of opportunity in the coming year,” said James Seymour, senior managing director of GE Capital, Healthcare Financial Services’ real estate financing team. “In particular, a majority of executives cited M&A as their primary growth strategy, a bullish trend we’re also seeing across our customer base.”

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On the skilled nursing care side, some of that M&A may be driven by changes implemented last October to Medicare reimbursements.

“[A]ny time you get an external shock to a system, that is a catalyst for M&A activity,” said Jay Flaherty, CEO of HCP Inc., a healthcare REIT that owns the HCR skilled nursing facility portfolio. “The August 11 CMS announcement was a major shock to the system. As HCR and other leading players have retooled their business model, I continue to believe you’ll see significant consolidation in this space.”

Flaherty also predicted “significant M&A consolidation” in some other healthcare spaces as well, which he said will be for “different catalyst reasons, but in this case, it all starts with the August 11 CMS announcement.”

Assisted living was named as the most promising growth market by 54% of executives surveyed by GE Capital, while community-based care and services was the least cited area for growth potential, at just 4% of respondents.

More than half (54%) of respondents said their most important financing need in the next year will be for acquisitions. Since the beginning of 2012, GE Capital has provided more than $1 billion of financing for various needs, including acquisitions. 

On the whole, many are optimistic about the health and strength of the healthcare industry, as 77% of respondents cited stronger performance expectations in the next 12 months compared to last year. Another 22% are expecting similar year-over-year results.

However, the U.S. economy (35%) and reimbursement pressures (29%) are considered the top two challenges to the senior living industry, according to those surveyed.

Another GE Capital Healthcare Financial Services survey of chief financial officers in the healthcare industry also showed increased bullishness on the health of the sector. The Healthcare industry was the only one to increase its expectations for growth in the next 12 months, up 13 percentage points to 39%—compared to an overall average, across industries, of 30%. 

Written by Alyssa Gerace

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