The number of publicly announced senior living and skilled nursing-related mergers and acquisitions increased by 11% during the second quarter of the year, to 110 deals from 99 transactions in the first quarter, according to newly released data from LevinPro LTC.
“Despite spiking capital costs and liquidity issues in the debt markets, buyers and sellers closed more transactions in the second quarter,” Ben Swett of Levin Associates said in a statement. “Sellers compromising or being more realistic on price helped boost transaction activity, but deals are still a lot harder to get done than one year ago.”
Year over year, however, deals are down, according to the data. Second quarter 2023 transactions were at a level that was 25% lower than the 147 deals in the second quarter of 2022. In fact, the 110 transactions recorded in the second quarter represent the second-lowest quarterly deal total since the first quarter of 2021, when 85 deals were publicly announced, Levin LTC said.
Assisted living deals made up a plurality of the deals in the second quarter, accounting for 42%, followed by skilled nursing at 36%. Independent living deals made up 10% of the quarter’s total, continuing care retirement / life plan communities accounted for a 7% share and affordable senior apartments accounted for 6%. Only one active adult deal was publicly disclosed in the quarter.
High interest rates are to blame for the lower numbers this year, according to the experts.
With perpetually climbing inflation, back in 2022, the Federal Reserve increased its benchmark interest rate for the first time since 2008. Since then, the Fed has raised the rate by a total of 5 percentage points, with 10 consecutive monthly increases, only taking a break in July.
Federal Reserve Chair Jerome Powell indicated a few weeks ago in a speech before an international conference in Spain that more increases will be forthcoming until the inflation rate is at or below 2%. At 3%, the inflation rate last month reached its lowest point since March 2021, according to the Bureau of Labor Statistics. That’s a full percentage point lower than the 4% reported in May.
“The threat of at least one more interest rate hike, let alone two, will likely keep more banks from financing M&A transactions in the senior care market, making deals harder to close and further lowering values for properties,” Swett added. “However, all-cash buyers will still be well positioned to acquire value-add or distressed properties from highly motivated sellers.”
