In this hot seller’s market a seller must be prepared for an increasingly rigorous due diligence process by prospective buyers. Healthcare legislation uncertainty coupled with increased competition for quality assets has led to heightened diligence by buyers whose aim is to evaluate, mitigate and price the perceived risk attendant to health care transactions.
The following will help Sellers be prepared:
- Be prepared to provide 3 years financial statements and year to date financial statement. Your senior housing broker should request a list of all benefits of ownership that might be added back to the facility’s earnings before interest, taxes, depreciation and amortization (EBITDA). Banks will also look for an industry average 5% management fee for underwriting.
- Tax Returns. Be prepared to provide 3 years tax returns and current years extension if filed.
- Be prepared to provide 3 years census by payor.
- Payor information. Identify and produce all provider agreements, demonstrate compliance with billing and reimbursement and payment regulations, or show what remedial steps will be taken to resolve any issues prior to closing.
- Regulatory compliance. Be prepared to provide the facility’s last two years State and Federal surveys along with all plans of correction (POC).
- Be prepared to provide the last 2 payroll runs.
- Be prepared to provide copies of all collective bargaining agreements.
- Real Property. Be prepared to provide evidence of ownership and a survey. Disclose any environmental issues if they exist.
- Licenses & Waivers. Provide all information relating to licenses and certifications relevant to the operation, including healthcare licenses, certificates of need, and local business licenses.
- Confirm that all ongoing litigation is covered by insurance and that anticipated liability is within policy limits.
- Compile a detailed schedule of fixed assets and inventory. Identify whether any assets are leased or subject to liens and if so provide the underlying lease or debt instruments. Identify which assets may not be transferred to the buyer because they are owned by other parties.
The due diligence period in a transaction can make or break a transaction. Not being prepared will cost sellers money and could prevent the close. Well organized data is essential and is evidence of the seller’s professionalism which instills buyer confidence. It demonstrates pride of ownership and value and results in a smooth transaction and a fast close.
The <a href=”https://www.shepjch.com” target=”_blank”>acquisition of bankrupt or distressed deals</a> provides an opportunity for Senior Living Providers to grow and increase their presence in today’s competitive market. Sweeping changes in the Healthcare industry as a whole and the recession has caused serious problems for many Assisted Living, Skilled Nursing and Continuing Care Retirement Communities often resulting in bankruptcies. The <a href=”http://www.hhs.gov/healthcare/rights/” target=”_blank”>affordable Care Act</a> and the evolution of health care technologies are contributing factors. Continuing care retirement communities in particular continue to face financial distress and challenges, which they’ve encountered ever since the economic crisis made it difficult for prospective residents to tap into their home equity. Skilled Nursing facilities face performance challenges as they try to adapt to a post –Affordable Care Act and Culture Change world.<!–mep-nl–><!–mep-nl–>Providers of small, medium or large portfolios have suffered and either declared bankruptcy or have been forced to sell at below the market rate per bed and unit. The losers, unfortunately for them, fall by the wayside, but their loss is a gain for those strong providers that have survived the downturn and are actively seeking growth in the present competitive and soaring Healthcare market. Providers that can adapt to the changes in the industry are emerging as winners. <a href=”https://www.shepjch.com/Bankruptcy.html” target=”_blank”>Chapter 11 bankruptcy</a> is always an acquisition opportunity. These properties are particularly attractive to smaller and mid-sized operators and owners that cannot compete with large-cap REIT’s. The current soaring per unit prices of Facilities virtually eliminate acquisition by the small and mid-sized providers.<!–mep-nl–><!–mep-nl–>The acquisition of a bankrupt or distressed facility presents a challenge and demands due diligence on the part of the new owner or operator. The all-cash deal, quick due diligence period, correction of all the problems that have caused the bankruptcy and the amount of capital expenditure to make the facility competitive in the market place are monumental considerations faced by a new owner/operator.<!–mep-nl–><!–mep-nl–>The turnaround from a distressed deal to a successful deal with an attractive EBITDA takes hard work, knowledge, capital and time. For example, a facility purchased for five million, two million in capital improvements, rate increases, change is payor mix and new market branding can result in a fresh concept and energy brought to the market. In three to five years the “winner” could be the proud owner of a twelve million dollar facility which becomes attractive for a REIT acquisition. In such a case it is evident that the result makes the acquisition of the distressed facility worthwhile.<!–mep-nl–><!–mep-nl–>New capital, demographics, technology and a culture change in the industry have accelerated the pace of the market. In this rapidly changing, competitive and demanding Healthcare market the prudent Senior Living provider must take advantage of all growth opportunities. The winners who have taken the opportunity to grow in number and deliver a higher quality of service to the increasing senior population makes the entire Healthcare Industry stronger.