Senior living M and A drops in 1Q to lowest since 2021

Mergers and acquisition activity slowed to approximately 32 transactions per month in the first quarter of 2023. This marks the lowest M&A activity the senior living industry has seen since 2021, according to a recent report from accounting and advisory firm FORVIS.

In the first eight months of 2022, deal volume totaled almost 50 transactions per month. Activity dropped to fewer than 40 transactions per month from September to December 2022. Those later months of the year are traditionally the busiest dealmaking period of the year, according to the experts. 

“While much of what shows up in the 2022 data on senior living M&A appears relatively positive compared to the past several years, pricing across the senior living space appears to have weakened by approximately 20% to 30% near the end of 2022 and into 2023 alongside the significant slowdown in deal flow,” the company said in a press release.

Interest rate increases by the Federal Reserve drove the slowdown, Forvis said. The Fed in May raised the target range for the federal funds rate to 5% to 5.25%. The measure, intended to reduce inflation and stave off a recession, was the fifth consecutive rate hike since March 2022.

“Those rate increases appeared to have a significant impact on deal flow in the senior living space towards year-end,” Forvis said.

Additionally, according to the report, there was a drop in the total senior living M&A transaction dollar volume in 2022. Total dollar volume reached only $14.4 billion in 2022, down 24.6% over the $19.1 billion in total dollar volume in 2021. 

“This drop in the total dollar volume in 2022 is especially significant considering the 19.5% increase in reported transaction volume in 2022 over the number of transactions reported in 2021,” the report noted.

Factors likely to affect senior living M&A activities moving forward are the economy, ongoing staffing challenges, cost pressures and census numbers.

“Combined, these factors are likely to keep a damper on valuations and deal flow, but the long-term demographic trends continue to favor the industry as a whole,” the experts said. “This cycle may provide a significant opportunity for forward-looking industry participants willing to invest in the long-term resilience of the senior living market.”