Industry Insights

Long-Term Care & Senior Housing M&A Update

April 2017
Author:  Austin Propst

Austin Propst

Director

Corporate Finance

Health Care

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

Springfield
417.865.8701

The long-term care (LTC) merger and acquisition (M&A) market saw an immaterial decrease in deal count from 2015 to 2016. With 337 transactions in 2016 versus 357 in 2015, a six-year run of consecutive increases was broken. According to Irving Levin Associates, 2016 deals produced $14.4 billion—a 1.4 percent increase over 2015. Although deal count was down on a year-over-year basis, 2016 was the second-most active year in the LTC M&A market. In addition, valuations remained steady with continued high prices paid for in-demand facilities.

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

The decrease in deal count in the latter half of 2016 can be attributed to a variety of factors, including the presidential election and long-awaited, inevitable increase in interest rates. These factors now have more concrete expectations going into 2017, likely leading to a more predictable M&A market going forward. After the presidential election, many buyers and sellers remain hopeful for an anti-regulation and pro-business administration, with the possibility of decreased expenses and increased tax benefits through the coming years.

In addition, interest rates continue their slow but steady trek upward after the Federal Reserve raised its key interest rate again in mid-December 2016. Despite this increase and projected increases for the year ahead, interest rates remain low by historical standards. For the year ahead, M&A volume is forecasted to continue at a high rate; however, as interest rates continue to rise, sellers should consider the risk of higher cap rates (lower valuations) as debt costs start to rise. Similarly, buyers and current owners should assess their growth strategy and debt structure while rates remain low.

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

Deal Volume

Deal Value

Valuation Metrics

Source:  Irving Levin Associates, Inc.

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