The Health Care M&A Monthly: Senior Care M&A Market Surges-
The Most Active Month In Memory, With One Jumbo Deal
In the health care arena, seniors housing and care is about as low tech as you go. Although always thought of as more of a real estate business than a health care service, at least from the investor point of view, that has been changing during the past 10 years as acuity levels have risen and different provider relationships have become more important. That said, real estate still plays an important role, but it is also a role that can get management, and investors, in trouble because of the ability to leverage it. That is just one reason why it has been popular with investors, including private equity firms.
Biotech, pharmaceutical, medical device and managed care companies, to name a few, rarely go out of business, or run the risk of bankruptcy, because they can’t pay their debt. Rather, it is because demand for their products has disappeared, their prices have become too high or their technology is outdated. But the marriage of debt to real estate has been a long one, and because each project is so capital intensive from day one, it will remain so unless expected equity returns come down to earth, which is something few are predicting right now.
Once the star of the investment community, as well as the shining and leading light of its industry, Sunrise Senior Living (NYSE:SRZ) fell on hard times by late 2008. Its development backlog became a burden just as the economy, housing market and debt markets came crashing down on the assisted living company. Also, as its fortunes tumbled, various landlords started applying pressure, legal or otherwise, to remove them from some of their properties, while at the same time a few previous acquisitions blew up on them, and it wasn’t pretty. By November 2008, SRZ’s shares hit a low of $0.27 per share, representing a market cap of just $14 million─and this for a company that at one time was worth close to $1.0 billion. The company was teetering on the brink of bankruptcy, even though most everyone agreed that a bankruptcy filing made little sense, as it would not be enough to solve all the complex problems and intermingled financial relationships.
It was at that moment in November 2008, eight months after joining Sunrise as its chief administrative officer and chief investment officer, that Mark Ordan took over as CEO, replacing the founder of the company in a difficult changing of the guard. Blood was on the Street, creditors were barking and threatening, occupancy was slumping and survival was unclear. But despite all that, at the core of the company was not just good real estate assets, but some of the best seniors housing real estate assets and locations in the country, and that was the card that we assume Mr. Ordan played. As an experienced “turnaround artist,” he was calm with the bankers and other stakeholders and didn’t get bullied when others might have folded. After nearly four years, he solved most of the financial problems and was able to get the company back on the growth track in 2012, with occupancy and its share price rising..............Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today