Senior housing and care industry M&A driven by smaller operators

High numbers of merger and acquisition deals but lower volume in the senior housing and care industry is a trend that will continue in 2013 a panel of senior housing experts said during a webcast held in late February.

The senior housing and care industry saw the number of mergers and acquisitions go up by 9 percent from 2011 to 2012 but the dollar volume drop by 44 percent.

“We are seeing an inverse correlation between volume and transaction size,” said Laca Wong-Hammond, who leads financial services firm Raymond James’ healthcare real estate investment banking activities.

“In terms of long-term care, there is a steady pace of smaller transactions whether it’s in seniors housing or seniors care, but also in the ancillaries like home health and even pharmacy,” she said. “There are only so many mega-transactions that can trade.”

The trend is reflective of the industry said Larry Cohen, chief executive officer of Capital Senior Living. “For several years, the M&A market was dominated by very large transactions, particularly by the larger healthcare REITs,” he said. “We operate in a highly fragmented industry. We have so many small regional operators with portfolios ranging from one to three or five or eight properties, so I think it’s a healthy reflection of the industry.”

Currently driving M&A in the senior housing and care industry are those smaller regional and local operators the panelists said.

“We’re seeing a big push by the regional and the local operators to increase their market share, whether it’s in the same or contiguous markets,” said Matthew Ryan, senior vice president of the healthcare group at international investment bank Houlihan Lokey.

He attributes this push to the evolving healthcare market due to healthcare reform and the continued creation of accountable care organizations and the like.

Smaller local and regional operators are also driving a trend in the market toward development Ryan said. “I think from a capital standpoint, the local banks seem to have a pretty strong appetite for new construction,” he said. Some real estate investment trusts (REITs) are also participating in development projects.

Ryan said from the senior living side of the industry, he is seeing developments in assisted living and in memory care and on the skilled nursing side, there is more of a focus on replacement of facilities or specific expansion opportunities in particular markets.

“Once these projects become stabilized, I think it will help feed the M&A market,” he said. “From our standpoint, the demand is definitely there.”