Senior Housing Mergers Driven By Strategy, Not Desperation

As affiliations and consolidations accelerate across both the for-profit and nonprofit sectors of senior living, new data show recent merger activity is driven more by strategy than necessity, which commonly drove activity in years past.

“While some sponsorship transitions and affiliations have been necessity-driven, due to financial and operational challenges, recent activity has clearly been strategic in nature,” writes specialty investment bank Ziegler in its latest report. “We are observing healthy organizations coming together and recognizing the increased benefits of operating as one, larger entity.”

And its a trend Ziegler predicts will continue in 2015, Lisa McCracken, senior vice president of senior living research and development, tells SHN.

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“At Ziegler alone, we’re involved in 10 [to] 12 not-for-profit discussions around affiliation,” McCracken says. “They are of varying sizes and most are not public at this point, but we anticipate a large number of these coming to fruition throughout 2015.”

Ziegler points to the recent merger between Omega Healthcare Investors (NYSE: OHI) and Aviv REIT (NYSE: AVIV), which created a $10 billion real estate investment trust (REIT), among other recent deals as an example of high-profile organizations coming together to form a larger senior living network.

Affiliation and succession planning, regional influence, and complementary strengths are trends providers who are looking at affiliation as a growth strategy should consider, Ziegler says.

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In addition, an increasing number of not-for-profit boards are exploring affiliation opportunities as an alternative to filling the CEO position. Retirement of a longstanding CEO has been a key influencer in a number of sponsorship transitions in the past two to three years, Ziegler says.

Earlier this year, North Carolina-based CCRCs Friends Homes, Inc. and The Presbyterian Homes, Inc. announced their plan to consider affiliation with one another, in part due to strategic succession planning. Expected leadership changes at Friends Homes — as well as shared resources and lower costs — was a strong consideration for affiliation, the communities said.

Regional influence is affected by an organization’s size, Ziegler says, noting that size will become increasingly important in leveraging bargaining power in the era of health care reform.

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Previously, reports suggested that affiliations among health care providers are expected to continue at a relatively rapid pace as organizations address the pressures of mounting health care legislation and the need for scale and diversification of service offerings.

Strategic affiliations can also help participating organizations to provide what the other can not, and vice versa.

“For example, an organization who does not currently offer home and community-based services may specifically be looking for providers who do,” Ziegler says. “In turn, they may have another core competency that the other player does not. This scenario can be a win-win for what each brings to the relationship.”

Read the report here.

Written by Cassandra Dowell

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