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Skilled Nursing Facilities

healthcare transactions

Rebound and Growth Potential in the Skilled Nursing Facilities Market

Historically Challenging Environment for SNFs

Skilled Nursing Facilities (“SNFs”) have historically faced a demanding operating environment. The COVID-19 pandemic further exacerbated these challenges, leading to facility closures due to patients seeking alternative care and staffing shortages caused by the “Great Resignation.”

Signs of Recovery and Improved Efficiency

Despite ongoing operational challenges like rising interest rates, inflation, and labor shortages, some SNFs have emerged stronger. These facilities adapted to these challenges by streamlining operations, leading to improved efficiency benefits as occupancy rates rise and cost structures remain controlled.

Public Company Performance as a Leading Indicator

A review of Ensign Group (NASDAQ: ENSG), a publicly traded proxy for the SNF sector, reveals a robust year-over-year (YOY) stock performance of 18.7%. This positive performance is bolstered by rising occupancy rates (77.8% to 79.9%) and a significant increase in EBITDAR (Earnings Before Interest, Taxes, Depreciation, and Amortization Rents) of 15.0% (from $536.6M to $616.9M).

PACS Group IPO Highlights Investor Confidence

The recent Initial Public Offering (IPO) of PACS Group is another noteworthy development. The IPO priced at $21.00 (mid-point of the filing range) and experienced a post-closing rise of 16.9%. Additionally, PACS’s valuation metrics appear comparable to Ensign Group, suggesting investor confidence in the SNF market’s potential.

M&A Activity and Attractive Valuations

SNF M&A activity has remained steady over the past three years. This stability points to a highly fragmented market with significant consolidation opportunities, particularly among “mom and pop” operators. Furthermore, valuations appear attractive compared to other provider-based services, potentially offering value alternatives for investors seeking growth opportunities.

Long-Term Growth Potential

While the industry faces ongoing operational challenges like new staffing minimums, long-term macro trends remain positive. These trends include an aging population, increasing Medicare spending, limited access to alternative care options, and a decline in pandemic-related safety concerns. These factors combine to create exceptional opportunities for SNF operators and investors with a deep understanding of the market dynamics.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director:

Brad Erhart, Director:

Daren Oddenino, Director: [email protected]