Brookdale expansion sends ominous message to many operators

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John O'Connor
John O'Connor

Former House speaker Tip O'Neill famously said that all politics is local.

Until last week, the same might have been said about senior living. This is a sector traditionally dominated by smaller operators. Even the industry's kingpins might have been accurately described as regional players.

But that all changed Thursday, when Brookdale Senior Living announced plans to acquire Emeritus Corp. for $2.8 billion. Half of the purchase will be a stock deal, while the other half will take the form of assumed debt.

Beyond the grand numbers is an even grander notion: that an eldercare operator out of Nashville can maintain a national brand. In many sectors, that would hardly seem remarkable. But in senior living, this runs counter to the conventional view that such scale cannot be sustained.

The deal is expected to close in the third quarter. If/when that happens, the expanded Brookdale will include more than 1,100 communities across 46 states. Brookdale CEO Andy Smith will serve as CEO of the combined company, while Mark Ohlendorf will be president and CFO. Emeritus CEO Granger Cobb is expected to join Brookdale's board and continue in a consulting role with the company.

Smith said he expects the merger to generate $100 million of revenue by the third year. This will happen by expanding existing home health and therapy services, he predicted.

It remains to be seen whether Brookdale can successfully go where no other firm has gone before. And some might question whether therapy and home health will carry enough water to make the deal sustainable.

But you can bet your last dollar that if this strategy works, other firms will soon be seeking their own national footprint. And many operators will be scrapping a local focus in favor of a new mantra: The bigger, the better.

John O'Connor is McKnight's Editorial Director.

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Daily Editors' Notes

McKnight's Daily Editor's Notes features commentary on the latest in long-term care news. Entries are written by Editorial Director John O'Connor on Monday and Friday; Staff Writer Tim Mullaney on Tuesday, Editor James M. Berklan on Wednesday and Senior Editor Elizabeth Newman on Thursday.

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