Capital Senior Living (NYSE: CSU) rejected several acquisition overtures from private equity firm TPG during recent months, Bloomberg reported Friday.
Bloomberg cited unnamed sources with knowledge of the matter. TPG and Capital Senior Living declined to comment for this article.
Shares of Capital Senior Living were up 19.44% as of mid-day Friday, trading at $4.30 a share.
This is not the first chatter about a potential purchase of Dallas-based Capital Senior Living, which operates about 130 communities nationwide.
Late last year, the provider invited investment banks to pitch on strategic options for the company and received interest from private equity buyers, according to a Nov. 2018 Dealreporter article.
Private equity interest is not surprising, especially in light of the fact that Capital owns a large percentage of its real estate, Stephens analyst Dana Hambly told Senior Housing News.
The firm’s base analysis pegs the real estate value at $5.50 a share — significantly above where the company is currently trading, he noted.
The company’s market capitalization has sunk amid operating challenges and market headwinds. Following the retirement of long-time CEO Larry Cohen, the provider named Kimberly Lody to the CEO position in early 2019.
Lody is focused on creating a more data-driven operation, has made changes in the C-Suite, and is tightening sales and marketing processes, she told SHN in an interview in March. There were early signs of stabilization in the company’s Q1 2019 earnings results.
If a turnaround is indeed taking hold, and the senior living market is turning as supply and demand come more into equilibrium following a period of oversupply, it may make sense for Capital Senior Living to resist selling, Hambly noted.
Still, the company has been under shareholder pressure already, and this could continue.
“Despite a strong argument for longer term value creation, to investors, ‘a bird in the hand is worth two in the bush,’ so the CSU board needs to have a strong case for rejecting current bids,” Hambly said.
Capital Senior Living is far from the only provider to be navigating rough waters lately. Supply pressures have been coupled with rising labor costs, driving up expenses even as occupancy has slumped.
Industry behemoth Brookdale Senior Living (NYSE: BKD) has also been trying to execute a turnaround under a new CEO, who took the helm in early 2018. The Brentwood, Tennessee-based company also entertained interest from private equity but ultimately did not move forward with a deal.
“This seems similar to what happened with Brookdale last year insomuch as a buyer approached with an offer that the board ultimately deemed too low,” Hambly observed, referring the Capital Senior Living situation.
TPG’s interest in senior housing and care
Capital would not be the only senior living company in TPG’s portfolio. The San Francisco-based firm — which has $104 billion under management overall — acquired Assisted Living Concepts in 2013. The provider re-branded as Enlivant, which today is based in Chicago and operates about 240 properties.
Irvine, California-based Sabra Health Care REIT (Nasdaq: SBRA) currently owns a 49% stake in a portfolio of about 180 Enlivant properties, with an option to acquire the remaining stake.
TPG’s interests extend beyond senior living. Recent acquisitions have given it a foothold across the continuum of post-acute and senior care.
TPG partnered with PE firm Welsh, Carson, Anderson & Stowe and insurance giant Humana (NYSE: HUM) to acquire Louisville-based Kindred Healthcare for $4.1 billion, in a transaction that closed in July of last year. Under that deal, TPG and WCAS jointly own a 60% stake in Kindred at Home, the nation’s largest home health care provider.
Following the Kindred buy, the same group bought Mooresville, North Carolina-based hospice provider Curo Health Services for $1.4 billion.
Another TPG company, Mediware, last year re-branded as WellSky. The organization has merged more than 30 health and human services companies under the brand umbrella, and has made a push to grow in home health through the 2017 acquisition of Kinnser Software and the 2018 acquisition of consultancy Fazzi Associates.