Shares of Brentwood, TN-based Brookdale Senior Living Inc. (BKD - Snapshot Report) rose 1.5% to $30.55 on Feb 21 as the company signed a definitive agreement to acquire Seattle-based senior housing services company Emeritus Corp. a day before.
Under the agreement, shareholders of ESC will receive 0.95 shares of BKD for each share, putting the value of ESC at about $28.59 a share, representing about 33% premium to closing price on the day the deal was signed. Including debt, the deal is valued at about $2.8 billion.
The uptick in BKD’s price is likely given the expansion of Brookdale’s presence in large population states. Further, a growing number of citizens living in senior-housing communities will support the merged entity’s growth. It is for this reason BKD’s Chief Executive Officer (CEO) Andy Smith is confident about driving long-term revenue growth, despite having only 10% post-merger market share.
The deal is a major footstep for BKD, which became public not too long ago, in 2005. It was New York-based private-equity firm Fortress Investment Group which acquired the company in 2000 and holds a 14% stake (largest) in BKD as of Dec 31, 2013.
The merged company will offer services such as assisted living, dementia care, skilled nursing, outpatient therapy, home health and hospice care in more than 1,100 locations. It will increase BKD’s units by more than two-thirds to 112,700 as it expands into the West and Northeast states. BKD’s units in California, New York, New Jersey and Massachusetts will increase twofold due to the deal.
The merger deal is also favorable for BKD given the impressive fourth quarter and full year 2013 results by ESC on Feb 20. ESC’s community, ancillary services, and management fee revenues escalated 24.6% to $101.2 million in the fourth quarter and rose 39% to $541.7 million in the year. Adjusted EBITDAR also spiked 25.6% to $29.8 million in the quarter and surged 36.3% to $141.6 million in 2013.
On the management front, Smith will be the CEO of the merged entity while the CEO of ESC will join the board of directors and continue in a consulting role. Currently, shareholder rights attorneys at Robbins Arroyo LLP are investigating the proposed merger.
Currently, BKD sports a Zacks Rank #1 (Strong Buy), while ESC carries a Zacks Rank #3 (Hold). Other players in the healthcare industry, which look attractive at present, include Enzymotec Ltd. (ENZY - Snapshot Report) and NuVasive, Inc. (NUVA - Analyst Report). Both of them carry a Zacks Rank #1 (Strong Buy).