The SeniorCare Investor: Have Public Markets Become Obsolete? -
With Cheaper Capital Elsewhere, Providers Shun IPOs
After the performance of the public markets for seniors housing last year, and the first month of 2013, you will be forgiven for thinking we have lost our minds with the statement that seniors housing and care companies as publicly traded entities may be going the way of dinosaurs. The fact of the matter, however, is that with the sale of Sunrise Senior Living and Sun Healthcare Group, the number of publicly traded companies is now at its lowest level since 1989, and only one of those from back then, National HealthCare Corporation (NYSE: NHC), is still publicly traded today. Now that’s a weird thought, isn’t it?
At its peak in the late 1990s, there were nearly 40 publicly traded seniors housing and care companies (hard to believe, but true). Now, we are down to just 11, and by the end of this year it could be even lower. In the past, the primary reason for going public was access to capital for growth, while acknowledging that ego played a significant role in some cases, as did the push from venture capital backers. And we can’t forget the use of stock options and restricted shares for executive compensation. Back in the 1990s, growing companies often did secondary stock offerings after their IPOs, followed by convertible bond offerings when they thought the sky was the limit for their share prices and quickly found out otherwise. And they did raise new equity for growth and to pay down debt.
But when was the last time you remember an operating company selling new shares in the public market? We can’t remember either, other than a very small offering by AdCare Health Systems (NYSE: ADK), but that doesn’t really count. The point is, even with the soaring equity prices, companies are not selling stock. They may sell the entire company, but not dilutive shares. Of the 11 remaining companies, two have already indicated an interest in selling to the highest bidder at some point in the past 12 months: Assisted Living Concepts (NYSE: ALC) and Skilled Healthcare Group (NYSE: SKH). Neither has happened because of their particular problems, but it still may happen, and others may join before year’s end. A third company, Advocat (NASDAQ:AVCA), has had a persistent buyer rebuffed at every turn.
And when was the last IPO in this sector? Other than the spin-off of Assisted Living Concepts in November 2006, which wasn’t really an IPO, the last IPO was Brookdale Senior Living (NYSE: BKD) in November 2005. At about the same time, Tandem Health Care filed to go public, and that would have been the first skilled nursing IPO in nearly 10 years, but it never happened because they ended up selling the company, and probably at a higher valuation..........Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today