A mega-corporation will form through the planned merger of Brookdale Senior Living and Emeritus, and while both entities expect to achieve significant efficiencies, senior living stakeholders say the challenge will be maintaining operational excellence.
The merger will create a senior living giant that further divides the industry into two distinct models: the smaller, regional players versus the monoliths. While each model enjoys its own set of pros and cons, the biggest challenge facing the mega corporations is the ability to maintain consistent, quality operations on a large scale, some in the business say.
Post-merger, the company will become, by far, the largest senior living provider with around 112,700 units in 1,161 communities across the country. Brookdale expects the combined company’s operating expenses will drop by up to $45 million a year and also anticipates that the expansion of existing products and services will drive up to $100 million of synergies annually.
Mergers produce economies, efficiencies, and get rid of a lot of redundancy, says Scott Stewart, founder and managing partner of Washington, D.C.-based private equity firm Capitol Seniors Housing. They’re also a go-to method for achieving scale.
“Growth is the name of the game,” he says. “There’s no quicker, better way to grow than to consolidate through merger, especially in this tight industry.”
That growth also equates to a very large company to run, and in this case, it’s combining two different cultures.
But if anyone can be successful, it’s Brookdale, a Tennessee-headquartered company with extensive merger experience having previously consolidated with the formerly-bankrupt Alterra Healthcare Corp. in 2005 and American Retirement Corporation in 2006, Stewart says.
“Brookdale is one of a few companies that have produced size through merger,” he says. “They’ve got experience with mergers and it’s done well for them over time. But we’re looking at something of a much larger scale with Emeritus.”
Not all senior living companies have handled rapid growth well. In fact, some believe the big box model faces extreme challenges: Alterra had to file for bankruptcy protection in the early 2000s after expanding too rapidly through new development.
Balfour Senior Living founder Michael Schonbrun, whose Louisville, Colorado-headquartered company acquired a failing Alterra community around a decade ago, says the operator would take people and “drop them into spots. They were putting up one building a week,” he recalls.
The memory care community Balfour purchased had had three different executive directors in the first three months of its existence.
“Families had organized themselves to start a rent strike,” says Schonbrun, who has an extensive background in healthcare operations. “It led me to think, it’s very tough to be a very large operation with the kind of quality people want.”
As the senior living consumer moves from the Silent Generation to the Boomers, expectations for service will be much higher, he believes.
Even companies with money, good site locations, and quality buildings face challenges though, he says. “The Alterra building we bought 11 years ago was well-designed, well-built, well-situated—but a total disaster when we took it over from the banks that had foreclosed on it. There was nothing wrong with the real estate; it was all about the operations.”
With that property, nearly all the original Alterra employees ended up leaving, either of their own volition or because they were fired. The few who remained, says Schonbrun, were a good fit with Balfour Senior Living’s culture and are still there.
Capitol Seniors Housing takes a similar approach, typically installing one of a few regional operator partners in properties it acquires.
“Our experience has been that working with the smaller, more regionally-based operators is the better [strategy]. They’re much closer to the ground. They know all their properties, the key personnel and their competitors,” says Stewart. “When you create a mega-corporation like what will be produced from this merger—it’s going to take senior management that much further away from the individual properties, which is the challenge.”
Balfour, too, prefers staying small with an intense regional focus in Colorado. When Schonbrun started the company 17 years ago, he wanted to make sure the emphasis was on quality operations rather than quick real estate expansion, he says, based on the bird’s-eye view he got through his own mother’s experience living in three different retirement communities.
Finding personnel and training them is a “terrifically labor-intensive effort,” he says. “In the assisted world, there are talented people—but the talent pool is thin, especially for those who are trying to meet the needs and desires of residents.”
Staffing a community with top-notch employees rather than “adequate” ones, he says, requires a strategy that isn’t just methodical, but also has a slow-growth model.
Carlsbad, Calif.-headquartered third-party management company Integral Senior Living takes a regional approach to management as well, with most of its communities located in the west and southwest.
Collette Valentine, CEO and COO of ISL, says she’s worked for companies in the past where the number of communities a regional director had to cover was much larger than her current company’s model.
“When I was a regional vice president [at her former company], I had 18 communities. I was going where there was fire,” she says. “It’s really important for me and for our company that we’re in communities a lot so we can see what’s going on and can best support them.”
Brookdale declined to comment specifically on plans for maintaining quality controls long-term throughout the company as the merger has not yet closed.
“Can it be done? I’m sure it can,” says Schonbrun. “It’s terrifically hard.”
Written by Alyssa Gerace