Consolidation tremors rumbling among the nation's senior care facilities are forcing the industry's CEOs to ponder how best to plan for the big one, the day when a proposed merger, takeover or some other seismic shift, such as a strategic affiliation, strikes their institution.
According to Bain & Company, healthcare merger and acquisition values rose 27% worldwide in 2017 to more than $330 billion.
That pace is expected to continue through 2018. Of this, senior housing and long-term care are significant drivers of deal volume, with 89% of healthcare executives telling Capital One Financial that they expect the sector to maintain current deal levels this year and 43% expecting an increase in senior care M&A.
In addition to mergers, large nonprofit and for-profit facilities are repositioning themselves to gain market share in locations of special geographic and demographic interest, often while departing less favorable markets, notably those in rural areas. Senior care systems are also being proactive and hooking up through alliances to share facilities, branding, personnel, expertise or other assets, reversing a trend in which for several years they were more focused on selling off distressed properties.
Today, the senior care industry is getting creative in finding ways to remain active in these markets.
Preparing for the inevitable
No matter how it’s done, the end goal is the same: scaling up to survive or remain as unscathed as possible by the relentless economic shocks hitting the healthcare industry.
Whether considering a merger response plan or an affiliation readiness plan, top executives at senior care facilities should keep several things in mind about their business as well as any prospective partner, suitor or acquisition interest. Those include:
- Finances: Make sure you maintain a financial scorecard showing day-to-day profitability, leverage, operating reserves and your ability to reinvest in facilities. Leaders at nonprofits, in particular, really need to spend time thinking about these things and how their business matches up with a potential or hypothetical new business. Even in a healthy market, growth can lag and create burdens on future operations.
- Competition: Know your market inside and out. Who are the new entrants? What is their product and cost structure? Is any new construction going on?
- Culture: Deals often fail because of a lack of cultural fit. Know your culture and the culture of any potential acquirers or targets. Culture may also be a driving force for change on both sides, leading to new services and products that benefit all involved.
- Technology: Don’t be outdated. Huge advances are coming to healthcare technology, and your institution needs someone to constantly evaluate it. You can almost tell how big of an investment a facility has made in IT if they do or don’t have a high-ranking technology executive running things. Remember, consumers coming into a facility have higher expectations these days. It’s not just about cable TV and Wi-Fi anymore. Think instead about having Amazon’s Alexa and Apple watches in every room. That’s where we’re headed.
- Leadership: Always have a succession plan for leadership in place. This is a reliable indicator of affiliation preparedness, particularly when many of your leaders have been in place for 20 or 30 years and are thinking about retirement. Indeed, that's often how affiliations or mergers start to gestate when there is leadership turnover.
- Human resources: Senior care is a people-oriented business. Unfortunately, outside of physicians and high-level administrators, it's also a relatively low-wage industry. That makes it hard to get people to stay longer, especially in a strong economy. So, do everything you can to encourage longevity: promote, retain, give raises. Look at HR from the customers’ perspective, too. Walk into a BMW dealership and see how you get treated. That’s how someone should feel when visiting an assisted living facility, for example, because he or she is going to spend the same amount of money there as on a luxury car—and they’ll be doing it every year for several years! Facilities that don’t grasp this will be left in the dust.
Consolidation in the senior care industry is coming, that much we know for sure. But that doesn’t mean it has to be a hurdle. When properly prepared for and addressed, these mergers and partnerships can function as what they truly are: opportunities to improve care.
Patrick McCormick, CPA, is a partner in Plante Moran’s senior care and living practice. He is based in the firm’s Cleveland office.