Transactions within the senior care industry are at an all-time high. There are many different buyer profiles looking to invest and each one has a different method for measuring ROI. For example, there are public and non-traded REIT’s, private equity firms, high net worth investors, national owner-operators and regional owner-operators. Ryan Chase, vice president of BluePrint Healthcare in Chicago, expand on this point stating:
The investment goals and objectives of each profile are going to be different from one to the next. In the case of yield driven investors – using the specific example of traded and non-traded REIT’s – they may be thinking about which operator out of their stable of relationships would be the best fit for a particular opportunity. National owner-operators and regional owner-operators are going to look at things differently. These buyers are also going to look at the costs of doing business in the local market and benchmark the historical costs at the facility for things such as dietary and insurance.
Many times senior living deals get delayed or even fall apart during the rigorous due diligence process. One of the due diligence areas buyers are paying attention to is the insurance and risk management spend, especially when acquiring skilled nursing facilities. Depending on the state pricing for liability and workers’ compensation insurance can be cumbersome; many times operators aren’t realizing that until after the transaction is complete. Gathering the data needed to transfer the insurance to the buyer’s broker can be a headache for all parties.
There are some key areas to pay attention too when going through the due diligence period that can assist operators in avoiding “post-close premium shock” along with making the insurance due diligence process much smoother.
To eliminate headaches, it helps to have a list for the attorney that outlines the insurance data needed to secure certificates of insurance for closing. Another common strategy (when both parties can get along) is to have the seller’s insurance broker reach out to the buyer’s insurance broker and provide the data needed for securing the insurance.
From a risk management perspective, there are many different areas that are typically overlooked since most buyers don’t feel this should effect the transaction. However, not understanding the risk management culture of a new purchase can be quite painful post-close. It helps to simply gather the historical loss data from the current broker and review the claim trends of the facility.
One of the largest issues with buying a new building is that the previous owner, knowing he/she is going to sell, often loses focus when it comes to risk management. It is common to see a big jump in claims in the months prior to and after an ownership change.
Best-in-class operators often times have risk managers that can take on a new facility and integrate quickly into its culture. Smaller, regional operators don’t always have that luxury so having their broker create a sound due diligence strategy that is uniform across all acquisitions is key in making sure the insurance spend doesn’t hold up the closing or paralyze the operations post-close.
Marlene (Marty) Butler is Senior Vice President, Practice Leader for Assurance’s Senior Living and Not for Profit divisions. Avi Lev is a Vice President at Assurance with a focus on the senior living industry. He advises, strategizes and consults facility owners and operators on their insurance and risk management needs.