Banker Insights: Skilled Nursing Facilities

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: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: Physician Services

PHYSICIAN services

physician services transactions

Market Dynamics Lead to Increased Hospital-based Physician M&A

Colorado Attorney General Strikes Agreement Impacting Anesthesia Partners

In a significant development within the physician practice groups industry, Colorado’s attorney general has announced an impactful agreement with Anesthesia Partners of Colorado, Inc. (USAP), affecting contracts with five hospitals in the state, including the Denver and Durango markets.

Implications for Middle Market Practices

While initial concerns may arise regarding financial partnerships, this agreement presents unexpected opportunities for middle market and lower middle market practices. However, we think this development may influence growth or exit strategies within the industry.

New Opportunities in Contract Management

Hospital systems are shifting towards smaller independent physician groups for contract management in areas like anesthesia, emergency, and radiology departments. The new contract growth should result in a fundamental increase in the valuation of the independent groups. 

Attracting Strategic Players and Investors

The potential for new contracts is likely to attract interest from strategic players and private equity investors in the healthcare M&A landscape

Navigating Antitrust Scrutiny

Antitrust scrutiny may impact smaller lower middle market targets, but they may now be seen as potential platform investments.

Maximizing Potential Upside

Owners of platform targets could see significant potential upside as first roll-over equity in the capital structure of “newco”.

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

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: Physician Services

PHYSICIAN services

physician services transactions

Artificial Intelligence and Automation as Strategic Differentiators for Healthcare Provider Organizations

  • In today’s healthcare landscape, organizations are increasingly turning to Artificial Intelligence (AI) and automation to address ongoing operational challenges. These technological solutions offer a pathway to enhanced efficiency, improved clinical workflow support, and higher morale among employees and clinicians through the simplification of administrative tasks. 
  • The spotlight was on AI at the recent HLTH conference in Las Vegas, with industry heavyweights like Microsoft and Google unveiling new AI initiatives. These developments are marketed as key to easing the everyday administrative and clinical issues that healthcare providers encounter. 
  • By implementing these innovations, healthcare organizations can automate essential tasks, such as patient intake procedures and complex documentation processes, placing themselves ahead in the market. The adoption of AI not only improves operational effectiveness but also addresses potential staffing issues by automating routine tasks, which, in turn, can attract and retain clinical talent. 
  • Although the full potential of AI in healthcare is still unfolding, it’s critical for organizations to carefully consider the range of available technologies and their potential ROI. Those who successfully integrate AI and automation, not only establish a position of competitive strength but also stand to improve financial performance at a time of growing cost containment. 

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

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: Physician Services

PHYSICIAN services

physician services transactions

  • Investor interest in physician practice management remains elevated and 2023 represents an excellent time for physician organizations to consider adding a strategic partner.
  • While the Covid-19 pandemic is over and physician organizations are returning or exceeding pre-covid volumes, operating challenges created by the pandemic, such as staffing, and enhanced patient acuity remain. These persistent operating conditions, coupled with sustained investor interest, are providing physician organizations with the opportunity to strengthen their organization by adding a strategic partner at attractive valuations.
  • These partnerships provide an opportunity to affiliate with a larger entity or remain independent while improving its financial strength, enhancing revenue, and adding greater efficiencies. It can also help accelerate an organization’s ability to transition to greater value-based revenue from fee-for-service.
  • Furthermore, these transactions provide an opportunity for physician owners to monetize a portion of the equity they have built over the years of serving as a physician and will typically be treated as capital gains vs. personal income.
  • Physician organizations that are interested in strengthening their position in today’s dynamic healthcare environment should consider all the advantages a strategic partner can bring.

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

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]