More assisted-living companies may be poised to go public in 1998.
But there may not be enough lanes in what has become in a short time a crowded field of publicly traded companies. There are 15 companies focusing on assisted living that had initial public offerings since 1994, including three last year. Some of the other players are part of larger corporations, making the field even tighter.
Catering to a more affluent and ambulatory clientele than nursing homes, assisted-living residences combine housing and personal support of elderly.
Healthcare entrepreneurs are banking on the growing number of older Americans to fuel their companies' growth. The U.S. Bureau of the Census projects the elderly population in the U.S. will double to 70.2 million by 2030 from 35.3 million in 2000.
While demographics indicate the timing will continue to be right for even more assisted-living companies to enter the market, the crowded field suggests merger mania might hit.
A hint of consolidation arose in 1997 with Brookfield, Wis.-based Alternative Living Services' $170 million acquisition of Wichita, Kan.-based Sterling House Corp. It has more than 200 residences in 20 states with another 100 under construction and 75 in development.
To keep Wall Street happy with their impressive revenue growth, companies are going to move into the acquisition mode. It takes less time to acquire than to build facilities. Depending on the market, it can take up to 12 months to build an assisted-living facility.
But major underwriters say they are demanding a profit before agreeing to additional assisted-living IPOs.
One exception to that rule may be Nashville-based LifeTrust America, which is backed by R. Clayton McWhorter's venture capital firm, Clayton Associates of Nashville, and New York-based Morgan Stanley Capital Partners. McWhorter, former president and CEO at investor-owned hospital company Healthtrust, and a board member of Columbia/HCA Healthcare Corp., is known enough that he should be able to muscle his way onto Wall Street with great fanfare.
Another example could be Portland, Ore.-based Encore Senior Living, which was formed in December 1996 by former executives of Portland-based Brim and Chicago's Pritzker family, which owns the Hyatt Hotels chain.
Forays like those of McWhorter and the Pritzkers show the entrepreneurial spirit behind many assisted-living enterprises.
Healthcare executives and their financial backers seem to enjoy assisted-living ventures more than other healthcare projects because such facilities aren't dependent on government funding. Many other healthcare companies now are embroiled in federal investigations of their Medicare and Medicaid billing activities.
Meanwhile, in the nursing home industry, federal government payment policies are more likely to spur mergers and acquisitions.
Smaller nursing home firms are vulnerable to the goliaths of Wall Street because of reductions in Medicare and Medicaid reimbursement, which represent two-thirds of all payments to long-term-care companies.
Home-care agencies are also looking at merger and acquisition activity because of reductions in Medicare reimbursement. Integrated Health Services of Owings Mills, Md.; Olsten Health Services of Melville, N.Y.; and American HomePatient of Brentwood, Tenn., will continue buying smaller agencies.