As more data on senior housing mergers is collected, new reasons for increased activity among both non-profit and for profit providers is becoming more apparent. For example, according to a report by the investment bank Ziegler, succession planning is increasingly driving merger activity in the sector. Every day thousands of baby boomers retire, and this includes CEOs in the senior housing industry. When a CEO retires from a senior housing company, that company now has the option of hiring someone new to fill the job or merging with another provider and having that provider’s CEO take over the new company.
Over the past few years, providers became more open to merging with a company as an alternative to succession planning because sometimes the best person for the job is already a CEO somewhere else, and it makes more sense to merge with that company than to try and pry their CEO away from them. Another reason for increased merger activity is the Affordable Care Act. For many senior housing providers, the Affordable Care Act made it better to be bigger than before, and this is motivating them to merge with other companies to attain that larger size and scale. Providers found that getting bigger through a merger can increase their bargaining power, make it easier for them to access the accountable care organizations that sprung up because of the Affordable Care Act, and is also helpful in lowering costs because they can eliminate redundant positions, systems and functions.
Lastly, Ziegler also found that providers are increasingly taking a deliberate, thoughtful approach when considering if a merger is good for them and, if it is, who they should merge with. In addition to considering the financials of a potential merger candidate, they are also looking at that candidate’s strengths, weaknesses, and culture to determine if the two companies are a good fit for each other. Factors such as the services the company provides, its size, unit mix, revenue sources, location, brand, and reputation are increasingly evaluated during merger discussions. Then, after a thorough evaluation, if the two companies both agree that a merger would be in their best interests, they begin serious discussions on the subject, and the likelihood of consummating a deal increases greatly.
With demand for senior housing services projected to increase for years to come, and interest rates projected to stay low at least until next year, merger activity in the senior housing space is likely to continue to grow for now. Senior housing participants who are looking to take advantage of this situation by obtaining capital for joint ventures or other purposes should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the different financing options that it offers for a wide variety of senior housing transactions.