Adding ancillary services is widely viewed as a way for nursing home operators to layer in sustainability. When it comes time to sell, those related companies and their revenue diversification can draw plenty of interest, but also complicate transactions.
That’s what the owners of 18 West Virginia skilled nursing facilities — including a 90-bed private room building under construction — found when they went to market earlier this year.
Stonerise Healthcare, a regional operator of transitional and skilled nursing care, has an extensive service network that includes therapy, home health and hospice care delivered across West Virginia and Southeast Ohio.
The sale of its skilled nursing facilities and a therapy company closed on June 30, with ownership going to an unnamed New York-based real estate investment firm and a new operator, Cincinnati-based CommuniCare Health Services.
The sale of seven home health and hospice agencies, an institutional special needs plan, and the project in development is pending regulatory approval, though CommuniCare said July 6 that it would also assume operations at Stonerise’s home health and hospice lines.
The addition will expand CommuniCare’s footprint to more than 110 healthcare centers across seven states and nearly 14,000 skilled nursing beds.
Lument served as the financial advisor to Stonerise on the deal, with Managing Director Laca Wong-Hammond on Wednesday calling its offerings a “once-in-a-lifetime acquisition opportunity.”
Among the company’s attractive qualities were its extensive network creating dominant market share; its location in West Virginia, where Medicaid reimbursement is relatively strong; and a portfolio with margins exceeding 20%.
“As a result, there was plenty of competition for this deal,” Wong-Hammond told McKnight’s Long-Term Care News.
CommuniCare did not respond to a request for comment from McKnight’s about any plans for immediate operational changes. The company previously announced longtime Stonerise executive officer Jessica Hudson would serve as division vice president over the CommuniCare centers in West Virginia.
Ancillary advantages and challenges
Larry Pack, co-founder and CEO of Stonerise, this week characterized the sale as a complex one, given the magnitude of the company’s related companies, their potential value and the need for stability at turnover.
Skilled nursing providers have increasingly turned to service diversification as a way to build revenue, creating new streams that can help offset downturns in core services.
A Ziegler CFO Hotline earlier this year revealed that senior care organizations’ interest in such services doubled during the pandemic.
But adding new companies can complicate deal making, with complex leadership, cash-flow, operational and regulatory challenges to address with potential buyers.
Wong-Hammond noted that passing ownership of Stonerise’s closely-held businesses required “creating tax-advantaged exit structures, leveraging our buyer relationships, and delivering results in spite of volatile capital markets and operating environments.”
Still, she said the market remains friendly to sellers, despite buyers facing rate increases. Completing a turn-around isn’t necessary, especially for sellers who can give potential buyers options.
“The best strategy to achieving seller objectives in this environment is to contemplate a variety of exit options, not limited to just a cash sale,” she told McKnight’s. “With many clients, we’re seeing increased demand for tax-advantaged sale structures, such as an ESOP [employee stock ownership plan] for instance. Creativity, hard-work, and experience will get deals closed in this tricky market.”