Industry Insights

Long-Term Care & Senior Living M&A Continues to Break Records

March 2015
Author:  Austin Propst

Austin Propst


Corporate Finance

Health Care

910 E. St. Louis Street, Suite 200
P.O. Box 1190
Springfield, MO 65801-1190 (65806)


Merger and acquisition (M&A) activity in the long-term care (LTC) and senior living industry saw a huge uptick in activity in 2014—even compared to a record-breaking 2013. Following a record 225 transactions in 2013, M&A volume continued to shatter records with growth of more than 30 percent totaling 294 transactions worth a combined $25.5 billion in 2014. According to Irving Levin Associates, Inc., the fourth quarter of 2014 saw 86 completed transactions, up from 81 in the third quarter of 2014 and up 32 percent over the same quarter in 2013. 

Regional Outlook

The links below offer a graphical representation of activity by BKD region.

East Region LTC M&A Activity

North Region LTC M&A Activity

South Region LTC M&A Activity

Valuations also have been on the rise. From 2013 to 2014, average capitalization rates in the skilled nursing sector improved 60 basis points, while average cap rates in the assisted/independent living sector on a combined basis improved 90 basis points, reaching 12.4 percent and 7.6 percent, respectively. Assisted living cap rates were 7.8 percent, while independent living cap rates came in at 7.4 percent for 2014. The average price per bed for skilled nursing facilities was $76,500, up 4 percent from 2013, while the average price per unit for assisted/independent living facilities was $208,150, a 27 percent increase from 2013. 

A favorable market remains for buyers and sellers, due primarily to exceptionally low interest rates. Even with some recent increases, interest rates are still low by historical standards. These reduced rates help create an ideal M&A environment, increasing values for sellers by way of lower cap rates and enabling buyers to take advantage of reduced capital costs. In addition, buyers in a competitive environment may be more inclined to negotiate value.

Financial and strategic investors remain optimistic about LTC M&A for 2015. Real estate investment trusts (REITs) will continue to invest in the sector as long as interest rates remain low and options for higher-yield assets remain slim. Strategic buyers also are being highly acquisitive due to access to favorable interest rates and a desire to build scale to help counteract increasing regulatory costs and reimbursement pressures.

In GE Capital’s recent survey of 150 executives in the senior living industry, 67 percent of respondents said their chief growth strategy for 2015 was to buy or merge with existing properties or operators. More than a quarter of respondents said they plan to revitalize and upgrade existing properties, while nearly one-third of respondents said current property and business valuations in the industry were sustainable based on the current state of the U.S. economy and the low interest rate environment. Overall, the survey presented a positive outlook from industry leaders for 2015, with plans for growth through M&A, new construction and renovations and an optimistic view on valuation sustainability. 

The charts and tables below offer additional information on historical transaction volume and recent valuation data.

Transaction Volume

Transaction Value

Valuation Metrics

Source:  Irving Levin Associates, Inc. and GE Capital.

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