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04/08/24
By: Laca Wong-Hammond
For seniors housing and healthcare owners considering exit alternatives, a thorough strategic options assessment that takes into careful consideration the ultimate goal and objectives remains crucial to ensuring the selected transaction structure maximizes benefits. Conducting a thorough strategic options assessment is no easy task, but the insights below should help prepare you for a successful process and, ideally, lead to a successful outcome.
- Conduct an operations assessment. Analyzing operating dynamics and evaluating long-term goals is essential, as a thorough process will assess the organization’s ability to implement strategic initiatives and succeed post-transaction. A detailed financial and proforma analysis is critical for driving aggressive buyer underwriting. Further considered in the analysis is any major, unfunded capital expenditures required to achieve forecast.
- Assess market factors. The organization should be able to clearly identify its competitive advantage within the marketplace and understand how to execute long-term corporate goals and objectives. Assessing market conditions relative to a competitor’s advantages, or the potential for new market entrants, is particularly important as it creates an opportune time to evaluate multiple channels for any exit strategy. The market assessment will also consider expansion opportunities and the organization’s ability to enhance its healthcare partnerships and referrals. In today’s highly dynamic capital markets, scale and footprint remain crucial to garnering significant investor interest.
- Determine structural goals. The structuring phase of the strategic options assessment remains particularly important for owner-operators with large portfolios or diversified operations, as there are dozens (if not hundreds) of potential alternatives available. Any transaction process should be structured with careful consideration regarding the ability to bifurcate the portfolio and select alternatives on an “a la carte” basis. If ownership seeks to remain vested with the organization post-close, several alternatives are available through a joint venture, a recapitalization, or a REIT Investment Diversification and Empowerment Act (RIDEA) structure.
- Dual track transaction process considerations. Evaluating structure options concurrently through a dual track process provides ownership with maximum coordination and seamless execution. A dual track transaction structure can save time and can ensure that the transaction accomplishes all goals and objectives.
- Define exit path. An experienced M&A advisor with a proven track record of success will drive a structured process to deliver premium proceeds and competition in transaction structuring and terms, creating flexibility for the seller. The transaction process is an exercise in identifying outliers and determining the optimal target. The development of a bespoke buyers list and the running of a competitive process through a deep network of suitable bidders are crucial to the success of any transaction. Generally, when pursuing a third-party exit, there are a few potential paths that should be considered:
- NEGOTIATED SALE: A negotiated sale can accomplish an expedient path to close with a more confidential process, minimizing operating disruptions. Under this process, a list of buyers, generally limited to one or two, is invited to express interest. Given that the pre-emptive process drives reduced negotiation leverage, a negotiated sale may not drive purchase price maximization.
- TARGETED AUCTION: Compared to a negotiated sale, a targeted auction usually involves up to 30 buyers and leverages competitive tension to drive purchase price maximization. This process is limited to the most qualified buyers via a careful screening of those most likely to consummate a deal on terms favorable to the seller.
- BROAD AUCTION: Compared to a targeted auction, a broad auction expands the process to investors outside of the sector. It involves a broad and diverse universe of buyers, increasing the likelihood of price maximization. However, a broad process has a longer timeline than both a negotiated sale and a targeted auction.
By establishing positive momentum and creating competitive tension early in the process, sellers can ensure the transaction drives optimal results. An in-depth and thorough strategic options assessment is critical to ensure that a transaction successfully accomplishes its goals. Serving as a roadmap for the transaction, the assessment provides ownership with objective guidance and clear recommendations across all proposed strategies. To learn more about how to maximize transaction success, download our whitepaper.
Lument’s competitive advantage is its “one-stop shop” of broad resources: M&A advisory services, financing, servicing, asset management, and clinical operations assessment. Lument M&A professionals have decades of experience conducting sell-side processes for a variety of assets, ownership structures, and businesses. As a next step, please feel free to call us to confidentially discuss how Lument can help your organization accomplish its goals and objectives.
Buyers and sellers alike can benefit from the options Lument’s M&A team provides.
The information included in this article is for general informational purposes only and may not be relied on in any manner as legal, tax, accounting, or investment advice, and shall not constitute a solicitation of or offer to buy or sell any securities. This article is not tailored to the needs and does not take into account the objectives or requirements of any particular client and past results do not guarantee future outcomes. Services provided through Lument Securities, LLC, Member FINRA/SIPC.
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Author
Laca Wong-Hammond
Managing Director
laca.wong-hammond@lument.com
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