While financial pressures have created challenges and precipitated closures for smaller mom-and-pop nursing homes, the trend has also meant opportunities for those looking to acquire and add scale.
Operators who have recently acquired mom-and-pop or small facilities say the most important consideration when expanding a portfolio with mom-and-pops is getting to know the culture of the facilities. Engaged staff, quality vendor relationships and even a “family-like” atmosphere can be the most important indicators of the profitability and viability of the small acquisitions down the road, even if these facilities are struggling in other areas. And all agree that state and federal funds can be particularly useful – if not necessary – in making the determination of whether or not to acquire.
Stuart Almer, CEO of the nonprofit Gurwin Healthcare System, knows this first hand. About three years ago, during the Covid-19 crisis, Gurwin acquired Island Nursing and Rehab Center, a 120-bed skilled nursing facility located in Holtsville, New York.
Almer said that having a strong culture and structure in place at the parent organization allowed Gurwin to manage the Island acquisition efficiently and provide appropriate oversight. And once the staff at the new facility became reassured by the parent organization’s solid practices, they came on board.
That said, it wasn’t easy at first, and Almer’s biggest challenge in the acquisition was getting the culture to become more uniform.
“Smaller facilities don’t have the resources of larger facilities or networks that have several homes under their jurisdiction. The challenge is integrating a facility into a network where the culture may be different,” Almer told Skilled Nursing News. “[Island] was run very differently and needed [the help of] an organization with a lot of resources.”
Idaho-based Cascadia Healthcare has been able to avail itself of some good opportunities regionally, especially now when there are abundant distressed properties that are looking to get taken over, according to Steve LaForte, the company’s chief legal officer and executive vice president of corporate affairs.
“There are a lot of smaller mom-and-pops or smaller regionals that in the last three or four years have just been at a breaking point,” LaForte told SNN. “So we’re going in and taking over facilities that are heavy turnarounds, and it’s something that we’ve gotten a reputation for being able to do well.”
Overhauling distressed facilities can be unpredictable, however, and LaForte cautions operators who are looking to acquire these to be sure that they have the scale to absorb any surprises.
“You go into it and you have one viewpoint of what it’s going to look like and then when you get your hands on the steering wheel, it’s a lot different,” LaForte said. “The way I describe it is, you think you’ve finished, you think everything’s fixed, you think culture is fixed, suddenly you find a hidden door in a wall and you find a whole bunch more skeletons in some room that you didn’t know.”
Checking out the culture
For Gary Blake, CEO of Creative Solutions in Health Care, which is Texas’ largest independent owner and operator in long-term care, checking out the culture of the potential acquisition is an important first step. It’s a rule of thumb he follows whether the acquisition is mom-and-pop or a large company, he said, and the exploratory stage includes meeting up with the leadership.
A family-owned company, Creative Solutions began operations 23 years ago with one facility in Central Texas and expanded aggressively to become one of the biggest regional players in the sector. Today, Creative Solutions operates 152 communities – a combination of SNFs with a few assisted living facilities in that mix.
“One of the things that we have always done before we acquire is kind of a motto within the company – ‘we hire before we acquire’ – so we can make sure that the culture with new regional teams and new administrator teams and even our corporate office teams [is aligned],” said Blake. “As a team, we have to make sure that we get each other’s help … For our acquisitions, it makes sense to go where you either have a network, or you can do an adjacent network. And then certainly it means driving quality across all levels of our business from our housekeeping, our dietary, our laundry.”
Building networks within the portfolio also has been a key strategy for Cascadia. “The more scale we have, the more cohorting we’re able to do,” LaForte said.
As a result, in the last two years Cascadia has turned around almost 20 buildings, and the company tripled in size in the last three and a half years, he said.
And the vendor relationships are important, Blake said, noting that Creative Solutions utilizes many private, family vendors based in Texas.
Managing vendor networks and bringing some services in-house can help with cost savings too. Operators say they have benefitted by removing redundancies and reducing the acquired mom-and-pop’s dependency on outside contractors.
For example, the pharmacy at Gurwin now runs the pharmacy services at Island. “We have control, we have efficient monitoring of it, and that also creates cost savings,” Almer said.
Identifying challenges, making changes
During the pandemic, Almer said, facilities of fewer than 120 to 150 beds had a difficult time staying afloat. So, it’s important to examine through consulting the extent of the challenges at smaller locations. Gurwin’s Island acquisition came with significant debt and operational challenges, for instance — and not all the challenges were readily apparent.
“We had a consulting period of about six months before we officially began to learn how deep seated the issues were that needed to be resolved,” Almer said.
Gurwin started to tackle those issues by assembling a seven-person transition team with intense involvement in the daily affairs of the acquisition.
“We focused on quality, finances, and human resources,” said Almer. “As a team, we made sure that we attended the morning report session at the Island facility every day … And if one of us could not attend, we always had a backup. And we always reported into the group of seven on our findings.”
Some of the issues Almer said his team discovered were “simple” fixes related to unnecessary expenses related to organizational fees, purchasing orders and contracting out duties which could be done by the parent organization.
“It is very, very simple [and means asking], ‘Can we do this piece of it ourselves and have savings?’,” Almer saidsays. “It’s looking at those day-to-day opportunities. [For us], there were hundreds, if not thousands, of changes that we made to turn the facility around.”
There are more “sweeping” changes that will be required during an integration process, and the acquiring company must make those changes “on day one,” even if relationships are tested, he emphasized. And communication with the staff, to make them aware of the change and get them on board, is of course important.
If culture is the biggest consideration – and biggest challenge to fix – the easier part of the transition surprisingly is addressing compliance, at least for some operators.
“A small facility has the same regulatory requirements of bigger facilities but we have more resources. So we had to go in and ensure the same protocols [were in place, and] that actually worked to our advantage,” Almer said. “Once we made the place safer, the staff ultimately saw that we could improve the facilities.”
Other operators agree that parent organizations can also benefit from practices of the smaller organization – but have to be flexible enough to adopt these practices. Also, the larger organization needs to go in not expecting immediate gains and prepare for contingencies during the turnaround.
But lack of innovation is one reason why some mom-and-pops are changing hands.
Steve Tack, CEO of family-owned Quality Life Services, said he is seeing a lot of mergers and acquisitions in Pennsylvania, and, “It’s the ones who have resisted trying to do something different” who are folding up.
Many of these family-owned businesses that have not been innovative are nevertheless also the ones that have heart, Tack said. And in losing the family-owned status, Tack said, something important is lost as well. So his advice is to maintain the family-like atmosphere if the acquiring company wants to hold on to its staff and provide quality care to residents.
While the current environment has made it too challenging to do deals for Quality Life, most of the organization’s acquisitions over the years have been through acquiring other family-owned businesses.
“Most of our growth has been with organizations and people who have poured their heart and souls into their facilities,” Tack said.
Companies featured in this article:
Cascadia Healthcare, Creative Solutions in Health Care, Gurwin Healthcare System, Quality Life Services
