One of the significant impacts of the elevated interest rate environment has been on ownership groups and their ability to continue supporting underperforming senior living and care assets. In many situations, it becomes inevitable that selling these assets to improve the overall financial health of an organization might be necessary. Once identified as eligible or ready for sale, there is then oftentimes a rush to get the asset to market, irrespective of the likelihood that the accepted offer could fall below the existing basis.
But is a quick sale always the best option? Are there alternatives to explore that could reduce or possibly eliminate financial losses?
One solution explored by many ownership groups is hiring a third-party consultant to conduct an operational assessment of the senior living asset prior to selling to understand and correct performance issues. This avenue has the potential to demonstrate a greater valuation upon listing, increase the number of offers, and improve the efficiency of the transition to new ownership.
What are the steps involved in hiring a consultant to address performance issues prior to a sale? Below are some factors to consider prior to taking an underperforming senior living asset to market.
Is slowing the sales process and hiring a third-party consultant riskier than offloading the asset immediately?
With the critical importance of confidentiality, the first question to ask a consultant is for their demonstrated history of maintaining discretion during engagement in a future-sale scenario. Once a level of comfort has been established, an experienced consultant should be able to make a high-level judgment on whether engaging their services will result in the desired outcome. For example, if the specific concern with a prospective sale is that the asset has regulatory issues that would depress value, then a consultant should be able to demonstrate specific measures, time frames, support, and expertise that will help mitigate these issues.
Will the potential improvements in the value of the senior living asset from the operational assessment be significant enough to offset the cost of hiring the consultant?
An experienced consultant should be able to articulate (and then demonstrate) their projections for how they anticipate operations improving and how long that process should take. In other words, based on prior engagements, they can speak to what improvement in net operating income (or occupancy, regulatory compliance, contract labor usage, etc.) could be reasonably expected to be accomplished within a specified time frame. From that information, the seller will be able to determine the optimal time for sale based on their individual goals and expectations.
What can you expect of an experienced consultant during the engagement?
While addressing specific performance issues, there should be an expectation of frequent and regular communication. Progress status, resources that will be on-site, and projections for resolution should be part of all updates. An effective consultant should feel comfortable bringing up any additional concerns or issues that they discover during their engagement, but should not be distracted from the primary objective.
Are there additional benefits that a third-party consultant provides?
There are ancillary benefits that can be realized when engaging a consultant to address specific concerns with an asset prior to a sale. First, gaining a comprehensive understanding of the specific challenges a new owner will face when transitioning the asset into their operations will provide the needed transparency in the sale process. It’s logical to expect that increased valuations and bidder interest would follow. Like an independent inspection of a residential home prior to a sale, familiarity with the issues or concerns that arise during the evaluation will give potential buyers greater comfort when submitting offers.
Additionally, knowing that a consultant is engaged to resolve specific issues prior to the sale provides for consistency and oversight while the transaction proceeds through the stages of sale and transition. An experienced consultant can also provide a smooth handover of the work that has been completed, or be engaged by the buyer to continue their work in resolving the specific concern to completion.
Contact Us
Health Dimensions Group® (HDG®) has nearly 25 years of management and consulting experience with a vast array of clients dedicated to the successful delivery of senior living, post-acute, and long-term care. With a proven process developed through years of successfully operating senior living communities, HDG could be your solution to enhancing the value of your senior living or care asset prior to sale.
For more information, please contact us at info@hdgi1.com or 763.537.5700
