Health Care Deal News: Spotlight on Long-Term Care- July 2012
And speaking of containing costs, the exciting news in June was the announcement that Genesis HealthCare had agreed to purchase Sun Healthcare (NASDAQ: SUNH) in the largest skilled nursing transaction since, well, the owners of Genesis sold their real estate to Health Care REIT (NYSE: HCN) last year in a $2.4 billion transaction. Genesis agreed to pay $8.50 per share, representing an approximately 38% premium to the closing price before the announcement. Since Sun split into two companies in late 2010, with the owned real estate assets transferred to a new REIT, Sabra Health Care REIT (NASDAQ: SBRA), Sun’s shares have ranged from a high of $15.01 per share prior to the CMS preliminary Medicare announcement in April 2011, to a low of $2.06 in the aftermath of Bloody Friday three months later on July 29 when the actual cuts were announced.
It had been difficult for most skilled nursing stocks to recover from that bad news, but Sun was particularly hard hit, partly because it no longer owned any of its assets and had a significant lease exposure to Sabra, and investors began to question (mistakenly) the ability of Sun to survive. The company had sufficient cash, and a friendly landlord with intimate knowledge of its operations, so survival was not really the issue; it became more a question of whether the best it could do was tread water as a standalone company in the new reimbursement environment with what will only be increasing reimbursement pressures. Management obviously decided the company would be better off as part of a larger entity, and instead of worrying about protecting their jobs, they did what amounts to the right thing for their shareholders, employees and customers.
So what is Genesis buying? On an annualized basis from the first quarter of 2012, Sun has $1.834 billion of revenues, $209.1 million of EBITDAR and $63.55 million of EBITDA. The EBITDAR margin was 11.4%, down from 13.8% in the first quarter of 2011, and the EBITDA margin was 3.5%, down 6.2% from the year ago quarter................Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today