This article is sponsored by Ziegler. In this Voices interview, Senior Housing News sits down with Dan Revie, Managing Director and Practice Head of Senior Housing and Care Finance, Ziegler Investment Banking, to learn about some of the key M&A trends shaping today’s senior housing market. He also discusses the steps Ziegler is taking to drive innovation in senior living technologies and service solutions through initiatives such as the Ziegler Link•Age Funds.
Senior Housing News: What career experiences do you most draw from in your role today?
Dan Revie: Problem-solving is the No.1 tool I’ve consistently used across all of my career experiences. Every transaction or financing we work on has bumps in the road at some point, so being able to work through those challenges with that tool has been integral to my growth in this field.
I joined Ziegler twenty-two years ago. The people and culture here are terrific, with many long-tenured, 20-plus-year employees, which is truly unique for a financial services firm. In addition, it is a company where you can be both challenged professionally and feel good about the work you do as it helps seniors live better lives. The people and the culture are a big part of what brought me here and keep me energized about the work we do.
Helping to solve difficult problems for our clients is very rewarding, and it is one of the aspects of the role that I appreciate most. No two client engagements are the same. For example, years ago we helped a publicly traded provider exit a large skilled nursing portfolio. While the provider was originally contemplating a traditional sale, in the end, we structured a combination of a sale of real estate and operations, and an exit of only a portion of the operations. The final structure, which was slightly different than their original strategy, provided the most beneficial outcome for the client.
What are some of the key M&A trends shaping today’s senior housing market?
The debt markets have gotten much tighter because debt is more difficult to find and more expensive. There is also a significantly greater number of distressed properties on the market now than there were pre-COVID. Additionally, we’re seeing some of the bid-ask spreads widen with a combination of sellers that still have pre-COVID expectations of value, and buyers that are unwilling to pay those types of prices due to the state of the debt markets.
There are obviously a number of macro indicators that we are keeping an eye on, but I would say that we are closely watching interest rates and unemployment numbers. Higher rates will make transactions more challenging. And the trend of unemployment figures will also have an overall impact on our sector, beyond the impact we’re already seeing today. As the labor markets loosen, we are hopeful that cost increases will subside.
Talk about some of the latest developments in today’s shifting financing landscape.
The lending environment is much more rigid today. Several lenders have gone pencils down on senior housing, with the primary concerns being the increased cost in the labor markets, and in general. Those hikes have resulted in margin compression of the bottom lines, building anxiety among the lenders about whether there’s going to be sufficient cash flow to make debt service payments. Until some of the cost pressures, particularly labor, start to ease a bit, I think those concerns are going to remain.
How is Ziegler helping owners and operators navigate changing macroeconomic conditions?
Ziegler views itself as a thought leader in the industry, and we are a resource for our clients with respect to any type of financing or M&A transaction. We go above and beyond with our technology funds called the Ziegler Link•Age Funds, where we offer senior housing providers access to cutting-edge technology and services that can help them improve their operations.
We’ve had three of them so far, all devoted to investing in emerging companies that have technology or innovative service solutions for the aging continuum. We scan the marketplace, so above and beyond investments, then we deploy that capital into a number of those companies that are in growth mode.
Further, most of the limited partners or investors are senior living providers and health care providers, for the most part, and we view the Ziegler Link•Age Funds as a significant value add for our clients overall. We closed our third fund several months ago, and the first one, I think closed in 2014.
Ziegler is a rounded, full-service firm. In addition to helping customers with transactions and lending activity, we’re here to provide information guidance to CFOs, CEOs and decision-makers to make an impact on the strategy side of their businesses as well. Through our research, we’ve been able to help our clients weather even the most challenging circumstances, like these, by enabling them to make key informed decisions based on that information. We do a lot to help customers navigate the dynamics of transactions themselves but again, our scope of work encompasses a lot of high-level strategy and support as well.
Ziegler recently attended NIC, what are three to four key takeaways on the evolving role of today’s senior living CFO?
Given the challenges in the market today, I think CFOs need to be more proactive. CFOs are traditionally aligned with more of an accountant or controller role, just running the numbers month after month, but a CFO’s role in this environment needs to be more than that. They need to anticipate changes and be willing to take the necessary steps to adapt to them. They should also place a greater focus on strategy that looks beyond the traditional view of historical financial statements.
Lastly, technology’s been playing a greater and greater role within senior living, and CFOs, while they don’t need to be technology experts, should be somewhat familiar with the tools that are able to help them on the technology and services side.
How is Ziegler helping operators address those key takeaways?
As a leader in the space, we try to bring the latest industry trends, statistics and information to our clients to help them make proactive decisions.
Lisa McCracken, Director of Senior Living Research, maintains our CFO hotline, which provides real-time feedback for CFOs around the country on some of the latest, hot-topic issues. Then, our Ziegler Linkage Funds provide access to technology and service resources for a variety of different operational areas. We’re able to share what’s working or what isn’t working with CFOs around the country.
We have partnered with NIC to implement a lender survey. We’re going to be retooling and relaunching that here in either the end of 2022 or into 2023. That helps scan the national marketplace so we can break some of those things down into regional markets where they make sense. Again, it’s about giving CFOs the tools they need to do their jobs as the complexity of the role grows. We are providing information that will help them execute a lot of those strategic responsibilities to a greater extent.
Finish this sentence: “The top strategy that home-based care providers should employ in 2022 to best prepare for 2023 is…”
Stay nimble and proactive.
Editor’s note: This interview has been edited for length and clarity.
Ziegler is a privately held investment bank, capital markets and proprietary investments firm. Specializing in the healthcare, senior living and education sectors, as well as general municipal and structured finance, enables us to generate a positive impact on the communities we serve. To learn more, visit Ziegler.com.
The Voices Series is a sponsored content program featuring leading executives discussing trends, topics and more shaping their industry in a question-and-answer format. For more information on Voices, please contact [email protected].