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M&A Strategy Considerations for Senior Healthcare Providers

oswaldcompanies May 21, 2018

As a follow up to our last article, Changes Role through Senior Housing Market, we introduce the topic of “Mergers and Acquisitions Strategy.” As the senior care industry continues to evolve, many owner/operators are looking to grow market share or exit.

The challenging environment has led to an unprecedented number of ownership changes. Occupancy issues, staffing challenges, regulatory burden, and reimbursement uncertainty have created a vortex for deal makers. Obviously the key to a good deal is for the seller and the buyer to both attain a satisfactory conclusion.

The question is, “How does one reach a satisfactory conclusion, whether as a buyer or seller?” Furthermore, “Why is this a topic for an insurance advisor?”

As covered in the prior article, a “Silver Tsunami” of prospective clients is on the horizon. With this anticipation, numerous facilities have been built or are under construction. Furthermore, the “boomer” population is not quite at senior housing status, creating occupancy issues today. This has brought dramatic economic pressure on today’s operators and enhanced the flurry of transactions. With a bright future, many investment dollars are targeting this industry as all indications point to abundant revenue in serving this aging population.

By definition, due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential. With an influx of opportunistic equity, sellers have an opportunity to capitalize on the demand and buyers must beware of unfruitful bad apples. A carefully thought out strategy must be used by both parties when determining the purchase/sale price. At the recent NIC spring conference, it was reported that skilled nursing beds were averaging a sales tag of $81,350 per bed and assisted living units were fetching $221,250. These figures represent an average across the nation and will fluctuate by domicile, but the transaction dollars are significant to both parties!

So where to start in determining the value of a deal? These are the factors that influence value:

The Facility

  • Year built, construction type, recent upgrades (roof, exterior/interior); what capital improvements are necessary to compete and/or attract residents?
  • High cost capital systems (fire suppression, boilers, HVAC)
  • Prior physical losses (Is mold or legionella an issue?)


  • Do surrounding demographics support occupancy?
  • Is there a bountiful workforce to meet the demand?
  • Is it in a friendly or unfriendly jurisdiction with regard to litigation?
  • Referral sources


  • How has occupancy been in the past?
  • Why is it for sale?
  • What is the financial picture today?
  • What is the facility’s reputation?
  • What are past claims and ratings?

Aging ServicesIn addition to the above due diligence, evaluations must consider numerous other factors such as recent regionally appropriate transactions. Past financial performance, payables/receivables, current unpaid or future contingent liabilities; are all factors that must be addressed. Will the purchase involve escrow? What is the exit strategy for the seller? What contingencies are in place for the buyer?

As documented, numerous questions arise in a formal due diligence process – there remains no “Silver Bullet” for addressing the concerns of either party. No matter the comfort or the scope of diligence of the process, uncertainties remain. However, an emerging mechanism for transferring risk is becoming popular in the US market. Having been used in other parts of the world, Transaction Insurance Policies have gained increasing acceptance as an effective tool to assist buyers and sellers in mitigating risk and overcoming deal obstacles.

In essence, the insurance products can be used by either the purchaser or seller, or even jointly, to speed the transaction and provide a clean exit and reassurance should a future liability arise post close. Products available today include; Representations & Warranties Insurance, Contingent Liability Insurance, Tax Liability Insurance. These products reduce escrow and provide a “clean” transaction for both parties.

As risk advisors, Oswald Companies naturally found a collaborative union between our Transactional Risk Advisor team and our Healthcare Aging Service practice, as specialization in this area is critical. With the onslaught of M&A in the Healthcare Industry; Oswald has introduced a unique offering that provides buyers and sellers “peace of mind,” improved speed of transaction, and offers a “vehicle” to combat the uncertainty prevalent in such deals.

In the management of risk, no area is more susceptible for exposure than in the transaction of a business. Due diligence and forensics will play a role in all deals but a solution has emerged to best mitigate and most importantly transfer risk, allowing a successful transaction to occur and providing the ultimate M&A strategy for both buyer and seller.

Want more information on your Insurance and Risk Management Needs for Senior Living? Contact us here.