Despite Dollar Volume Drop, Deal Volume Increases
With the presidential election last year, plus all the uncertainty surrounding the fiscal cliff and the federal debt limit, one could have expected the overall health care M&A market to be slower than usual. The same could be said for the seniors housing and care market, which had the added uncertainty, at least for skilled nursing facilities, of potential reimbursement cuts. The reality is that 2012 was really a mixed bag, with dollar volume down but transaction volume up.
The dollar value of publicly announced M&A transactions across all of health care, including pharmaceuticals and medical devices, dropped from $231.0 billion in 2011 to $143.3 billion in 2012. Within that total dollar volume, health care services M&A declined from $81.7 billion to $56.0 billion. As far as seniors housing and care is concerned, the dollar volume dropped by 44.1%, from $16.4 billion to $9.2 billion of publicly announced transactions. But long-term care dollar volume as a percentage of health care services volume only fell from 20.0% to 16.4%.
The real story for 2012, however, was that total health care transaction volume was up nearly 6%, from 1,004 announced deals in 2011 to 1,063 in 2012, with health care services growing from 563 deals in 2011 to 613 in 2012. Based on number of deals, this was one of the most active years since 2000. Within the services sector, seniors housing and care had a 9.3% increase in deal volume, from 172 to 188 announced transactions. The point is that while dollar volumes mostly declined across the board, largely because of fewer blockbuster deals, it was an extremely active year with buyers focused more on strategic acquisitions and not headline-grabbing deals. On the senior care side, you don’t need to be reminded of that. The average deal size in our sector dropped by nearly 50%, from $95 million to $49 million in 2012.
We have not yet finished our calculations for 2012 that will be included in our annual acquisition market analysis in The Senior Care Acquisition Report, but preliminarily it does appear that 2012 will be very similar to 2011 in terms of the average price per unit for seniors housing and close to the record set in 2007. The question that everyone asks is, How long can this bull market last? With interest rates projected to remain quite low for another two to three years (at least), the cost of capital and most likely the supply will not be the problem. What could cause a stall in this market is a reduction in the supply of the high-quality properties that is mostly responsible for driving the higher average per-unit prices. Even though demand would remain strong, if these “A” quality properties and portfolios don’t come on the market, by default the average price per unit would come tumbling down……..Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today