Strategic Acquisitions Boost Senior Housing & Care Deals 9% in 2012

The 2012 healthcare M&A market was a “mixed bag” influenced by uncertainties stemming from the fiscal cliff and the federal debt limit, as dollar volumes decreased while transactions were on the rise, according to Irving Levin Associates’ Senior Care Acquisition Report. 

The “real story” for 2012, suggests the report, is that the total number of transactions within the healthcare market climbed nearly 6% to 1,063 deals. Based on the number of publicly announced deals, 2012 was one of the most active M&A years since 2000, according to Irving Levin. 

Senior housing and care showed a 9.3% increase in deal volume, from 172 to 188 announced transactions. Although the number of deals rose, dollar volumes for publicly announced M&A transactions fell to $143.3 billion in 2012. 

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While dollar volumes mostly declined across the board, according to the report, last year was still “extremely active” as buyers focused more on strategic acquisitions rather than “headline-grabbing” blockbuster deals.

For the senior housing and care sector, dollar volume dropped by nearly half (44%) in 2012 to $9.2 billion for public deals compared to $16.4 billion in 2011. 

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Graph credit: The Senior Care Acquisition Report, 18th Edition, 2013, Irving Levin

The acquisition activity of health care REITs was one of the biggest changes in the senior housing and care market, notes the report.

In 2011, REITs had four acquisitions that totaled a combined $19.2 billion, ranging in size from $2.4 billion to $7.6 billion. 

The REIT deals in 2012 weren’t nearly as blockbuster, however: the largest acquisition was valued at $1.73 billion, and only two transactions clocked in at more than $1 billion.

Those numbers will change somewhat with Sunrise Senior Living’s acquisition by Health Care REIT, which closed in early 2013. Even though the original deal was valued at $1.34 billion, it could top $4 billion, notes the report, as Health Care REIT continues to buy out Sunrise’s joint venture partners. 

Fewer REIT deals does not mean they have cooled their interest in the market, says Irving Levin.

“It is not that the REITs aren’t interested in the large deals anymore, it’s just that there are not as many of them and the ones that exist have become increasingly expensive,” says the report. 

However, there are more buyers—and a wider variety of them—already in or entering the market, according to the report, along with a substantial increase in the smaller publicly traded REITs completing acquisitions and a growth of the non-traded REITs. 

These private REITs were highly active in 2012, and this will continue through 2013 and most likely beyond, according to Irving Levin.

While their cost of capital is higher than the large REITS, the supply of that capital “is not a problem,” notes the report, and higher cost have not prevented them from growing by acquisition. 

Access the abstract for the 2012 Senior Care Acquisition Report.

Written by Jason Oliva