While senior housing M&A transactions slowed down overall in 2016, the not-for-profit sector bucked that trend in a big way.
More than 91 not-for-profit communities changed sponsor or owner status last year, setting a new record, according to recently released data from investment bank Ziegler.
Those 91 communities changed hands as the result of 60 transactions, some of which involved multiple properties.
That total is almost certain to rise as additional sponsorship transitions come to light in the the coming weeks and months, Ziegler Senior Vice President of Senior Living Research & Development Lisa McCracken told Senior Housing News.
Notably, 49% of the transactions saw not-for-profits transition to for-profit ownership—a decrease from recent years.
“That tells us that there are fewer in the not-for-profit side that are being acquired or disposing because of financial distress,” McCracken said. “There’s more strategically driven affiliation than transactions from a [provider saying], ‘We have covenant violations, we’re approaching a bankruptcy, somebody help us.'”
Perfect Storm Drives Activity
The record-setting pace in 2016 can be explained by the fact that there is practically a perfect storm of factors driving transactions.
Ongoing changes to the health care system and a more complex environment overall; fiercer competition due to for-profit growth; increasing technology demands; and the need for growth capital are just a few of the reasons identified by Ziegler.
Also, hospital and health system consolidation took place in a big way a few years ago, and now these organizations are on the hunt for post-acute partners in their service area, McCracken said.
Another reason for increased activity: Top leadership hitting retirement age.
“We all talk about the Boomers retiring, and many of these Boomers are the CEOs, COOs, CFOs of not-for-profit senior living organizations,” McCracken said. “When you have C-suite execs who have been in an organization for many years and there may not be a clear successor, we’re seeing those boards say, ‘We know some of these external pressures are greater now than 10 years ago, when we may have just done an executive search.’ Now they’re looking at an affiliation route.”
While Ziegler has not done a tally, at least a “handful” of the transactions in 2016 coincided with an executive retirement, she noted.
Written by Tim Mullaney