The SeniorCare Investor: SNF Business At A Crossroads--
Lawsuits, Verdicts, Reimbursement: Bracing For The Future
Very few people remember what happened a little more than seven years ago, but in early 2003, an unknown entity (at least to the senior care world) stepped in at the last minute and snatched the remaining assets of a bankrupt Integrated Health Services (IHS) from the presumed buyer, literally on the steps of the court house. Trans Healthcare Inc. (THI) thought it had the deal wrapped up for $97.5 million, but an entity called Abe Briarwood, backed by Cammeby’s International, swooped in for $114 million in cash and was willing to assume the post-petition Medicaid and Medicare billing liabilities, something that made the court very happy.
We are certain that the founder of Cammeby’s, one Rubin Schron, had no idea where this initial acquisition would take him in the rough and tumble skilled nursing industry, which he may have thought would be a walk in the park compared with the brass knuckles New York City real estate market where he made his fortune. And, most certainly, he never thought he would now be in court pitted against a man he trusted with everything. How this unfolds could have significant ramifications for the skilled nursing acquisition market, on top of all the other developments that are giving some owners concern over the future, but giving others a reason to see opportunity. But first, a little history.
After Cammeby’s made the winning bid at the 11th hour, THI at first tried to fight it, but then the two sides settled their differences when Cammeby’s hired THI to run the newly acquired IHS assets. This is simplifying things a bit, but generally that’s what happened. Then, in May 2004, we caught wind of an acquisition offer that was brewing for the former Mariner Health Care from none other than Cammeby’s, but under the name National Senior Care, and separate from its Integrated Health deal. Perhaps the most shocking aspect of that deal was how many people knew about it in May and it wasn’t announced until the end of June. We did outline the general terms of the deal a month before it came out, but we didn’t find out the actual price (we were a little light) until a week or so before it was announced when someone we named “deep throat” started calling us, telling us we were close, and then giving us the exact price and the exact timing of the announcement. While we never found out who he was (no caller ID at the time), the information was spot on and the calls ended about a month later.
The purchase price for Mariner was just under $1.0 billion, and when you capitalized the lease payments, the total transaction value increased to about $1.25 billion. This resulted in a price per bed of $38,800 and a 9.2x multiple of annualized EBITDAR. While the per-bed price may appear to be low, one must remember that the skilled nursing sector was coming out of a depression when most of the major chains had filed for bankruptcy protection and values had plunged. And the premium paid for the Mariner shares was a high 49% above the prior day’s closing price, despite the publicity given the deal pre-announcement on these pages. The relatively high price in that environment was most likely because about 70% of the approximately 32,000 beds were owned, and not leased or managed, and as a “real estate” investor, that probably was appealing to Mr. Schron. The deal closed at the end of 2004, but perhaps the most long-lasting impact on the target entity, which some time later had a name change to Sava SeniorCare, was the role that Mr. Schron’s attorney, Leonard Grunstein, came to play.
There were really two sets of problems that began to emerge. One was what transpired with the original acquisition of the Integrated Health assets and the role of Trans Healthcare, which eventually came to be known as Fundamental Long Term Care when Fundamental purchased the assets of THI, the sale of which some claim was under duress and fraudulent. There is a separate lawsuit filed on July 1, 2010, against Leonard Grunstein, his brother Harry, Murray Forman and several other parties alleging, among other things, fraudulent conveyance, unjust enrichment, legal malpractice, fraud, breach of fiduciary duty, breach of lease agreements, tortious interference and aiding and abetting fraud. Want to read more? Click here for a free trial and download the current issue today