Despite what experts called a “sluggish start” to healthcare transactions this year, mergers and acquisitions in long-term care outperformed the rest of the sector in the first half of 2024, according to a recent analysis from advisory, tax and assurance firm Baker Tilly.

“Even though that report is showing that the number of deals is going down within senior care itself, the number of deals increased for the first six months of this year relative to last year,” Michael Demers, managing director with Baker Tilly Capital LLC, the private investment banking subsidiary of Baker Tilly, told the McKnight’s Business Daily on Wednesday. The group helped prepare the report, he said.

Mergers and acquisitions involving senior living communities and skilled nursing facilities set a new quarterly record of 183 publicly announced transactions in the second quarter of 2024, according to data released in July by LevinPro LTC. The number of mergers and transactions in the second quarter was 21% higher than the 151 transactions recorded in the first quarter of 2024 and 49% higher than the 123 deals in the second quarter of 2023.

Assisted living communities accounted for 45% of M&A transactions in the second quarter, followed by skilled nursing facilities, at 35%, according to the data.

Devers said that many distressed sales are happening in long-term care.

“Certain states are not reimbursing at a really high rate, and they [long-term care] struggled after COVID. The financial condition never really improved, and they tried their best to make it work out, but they just couldn’t,” Devers said. “So, you’re seeing those sales happen in the first half of this year where they’ve given up, they’ve thrown in a towel, and they did a transaction.”

As an example, he said that a stand-alone operator, even if it is in a favorable reimbursement state, may not be making much money because expenses cut into profitability. As things get more challenging for the operator to survive as an independent, stand-alone facility, it might make sense to affiliate with a larger provider, he said. 

Jennifer Schwalm, principal with Baker Tilly’s healthcare-senior services practice, works largely on the not-for-profit side of long-term care, where similar trends are seen, she said.

“It’s the pressure in long-term care, and it’s not just in nursing homes or memory support,” Schwalm said, noting that much of her work involves continuing care retirement / life plan communities.

In the not-for-profit space, she said, many affiliations occur rather than acquisitions, and operators are looking for the right partner to combine their mission and resources.

“I think the bottom line is, it comes down to sustainability and how they can remain sustainable as an organization. That’s really the driver for some of the decision-making,” Schwalm said.

Demers said he expects transactions to trend in much the same way throughout the second half of the year.

“It’s just harder to be a small stand-alone operator or facility. I think you need scale to be more effective,” he said.