Brookdale Merger Sets Stage for More Senior Housing Deals

Thursday’s $2.8 billion merger announcement of Brookdale Senior Living (NYSE:BKD) and Emeritus Corporation (NYSE: ESC) may redefine the senior housing landscape and drive more consolidation amongst other operators, suggests a recent Barclays report on the merger. 

Though the merger intends to create “only nationwide network of senior living communities with fully integrated ancillary services across the continuum of care,” there are a number of attractive acquisition opportunities available in the broader senior housing industry, according to Barclays.

“The senior housing market in the United States is highly fragmented, and we expect continued consolidation and transaction opportunities given the favorable financing environment,” Barclays writes. 

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The merging of two senior living industry titans will create a combined entity, controlled by Brookdale, that commands a 10% market share across all senior living with 112,700 units in 1,161 communities in 46 states. 

Broken down by product type, the company will have a 13% market share across assisted living and a 4% share across independent living. 

The top 25 independent living operators in the United States only represents 24.5% of all units in the market, while the top 25 assisted living operators represent 37.7% of all units, as noted by data within the report. 

Although Brookdale will become the largest senior housing operator in the nation following the acquisition, the transaction “will not significantly increase the leverage of the combined entity,” Barclays says.

The acquisition does, however, increase Brookdale’s presence in several markets by more than doubling in California, New York, Georgia, New Jersey, Washington and Massachusetts.

Additionally, the company will also increase its density by more than 25% in 13 of the country’s most 15 populous states.

Comments made by Brookdale CEO Andy Smith during a Thursday webcast announcement of the merger indicate the transaction will produce “significant” operating efficiencies, including a reduction of up to $45 million a year in the company’s operating expenses.

In a statement released by Emeritus on February 20, the company said the merger of the two companies will better meet the needs of the nation’s “silver tsunami” aging population—an aging population anticipated to represent 20% of the U.S. population by 2030. 

As a result of the merger, a Brookdale community will be located within 10 miles of 6.5 million seniors age 80 or older. 

“We believe the transaction will be viewed positively given scale benefits from the merged entity, incremental accretion from reinvestment through Program Max, and embedded real estate value that will continue to accrue to shareholders,” Barclays said. 

Barclays bases its positive observations of the Brookdale-Emeritus deal favorable, especially given senior housing’s operating environment within bigger picture of healthcare services.

“All of this comes as the company continues to operate in one of the few segments of healthcare services showing positive operating momentum with limited risk to government payors,” notes Barclays.

The deal is expected to close during the third quarter of 2014. 

Written by Jason Oliva

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