With the pandemic stretching on and real estate continuing to fluctuate, many providers are vehemently watching the behavioral health industry as they consider their merger and acquisition (M&A) strategies for the end of 2020 and beyond. Here, we examine the influence of COVID-19 on housing and discuss key considerations for M&A strategies – including helpful tips from the COO of a national behavioral health agency.
Sales and Renters Forecasted
According to a recent analysis by the Wall Street Journal, the pandemic has left millions of homeowners with increased home equity, while ultimately unable to keep up with their mortgages over the long term. This has led to a spike in sales of single-family homes, particularly in suburban areas.
This surge of suburban homes hitting the market has led to bidding wars in many areas; however, real estate experts believe sales will rise even more steeply beginning in January, 2021, when forbearance programs put in place at the state and federal levels are expected to expire.
In the meantime, many home sales have been initiated by investment companies eager to seize on an emerging rental market, which has already led to record occupancy rates. At the same time, investors have also initiated sale-leaseback programs for individual homeowners, as well as commercial property owners, which enables owners to “cash in” on high market prices without having to move, because they transfer ownership and become renters on the property instead.
With so many investors entering the market, those looking to use a sale-leaseback or rental strategy should be sure to partner with an organization they trust. Don’t hesitate to investigate companies thoroughly, including how long they’ve been in business, their customer service ratings and feedback, and whether they evidence authentic commitment to the individuals you serve.
M&A Market Drivers For Providers
According to Stacy DiStefano, Chief Operating Officer at Chimes International, the market drivers that will impact providers will likely not show up until six months from now. This is largely due to flexible payment arrangements and creative funding provided by states to help keep social service organizations afloat.
However, Stacy believes this will change soon, “I think in the spring, and in the first and second quarter of the next calendar year, is when we’re going to see folks realize that their P&L’s are in trouble and that we really need to look at some alternate ways to stay in business, and M&A is going to be a huge part of that, no doubt.”
The Bottom Line: Don’t Rush, But Plan Ahead
With many providers anxiously watching the market, mergers and acquisitions have become an ongoing topic of conversation, whether organizations are looking to reduce costs, identify opportunities to expand, etc. No matter where you may fall, Stacy recommends not rushing into any decisions… but being careful to plan ahead.
“I don’t see too much of a difference between the for-profit and the not-for-profit space—the financials are what they are,” says Stacy. “So you’re going to have to make a change or look internally for a pretty big restructure if you can’t survive as-is.”
Key considerations for providers include:
- Maximize leadership and service delivery: A merger can help leverage healthy organizations to create a stronger company, as well as redirect capital toward services.
- Find the right fit before you say yes: Rather than accepting the first offer or reaching for the easiest M&A match, carefully consider the cultural, financial, and operational impact of any decision.
It Benefits You To Find The Right Partner
It’s both possible – and important – to find people who are pursuing a merger or acquisition for the right reasons. In our current volatile market, various M&A strategies can secure and improve services for individuals with I/DD, who are already managing unprecedented disruption due to the pandemic.
Now is an excellent time to carefully consider your options. This might include selling homes while the market is still hot or investigating leasing and rental partnerships that increase cash flow. Be sure to find a partner you trust who can help you craft a strategy that enables you to thrive well into 2021.