We are experiencing an influx of seniors entering nursing homes, a trend that is likely to continue for the next 5 to 10 years at least. This has created demand for assisted living facilities and retirement communities, and it is an exciting time for owners of these facilities and centers who are planning their exit strategy. Below is a detailed review of the assisted living and retirement community industries with detailed insights into how you can determine your company’s value and sell for fair market value or higher in the existing market.
About The Assisted Living Industry
This industry includes businesses that offer personal care and residential services for elderly individuals and those who are unable to care for themselves adequately due to a disability or illness. Assisted living centers (and retirement communities) typically provide meal services housekeeping, and provide social and leisure opportunities. Here is the most recent industry data:
- There are approximately 37,000 assisted living facilities and retirement communities in the U.S.
- There was a 0.7% annual growth for the assisted living industry from 2018 to 2023
- The assisted living industry generates $147.8 billion in annual revenue
- The annual profit for the assisted living industry is $14.7 billion
- Experts predict a sizable increase in annual growth (4.7%) from 2023 to 2028
Keep in mind, this data is specifically for assisted living facilities and retirement communities that offer on-site nursing care services. This data is provided by Business Reference Guide. There is a noticeable trend toward more group homes and fewer assisted living centers, although both types fall within this industry.
As is the case with the medical industry overall, staff shortages are far too common. The expected growth for the assisted living and retirement industries are driven by an aging population. More elderly individuals are opting for assisted living and experts expect this trend to continue over the course of the next five years.
How Much is My Assisted Living Facility Worth?
As mentioned, there is great demand for assisted living facilities and retirement communities due to the consistent revenue source aided by an aging population. This demand has driven up acquisition multiples (rule of thumb data) and presented an excellent opportunity to sell. Specifically, here is the most recent rule of thumb data for assisted living centers and related businesses:
- Assisted living facilities and retirement communities sold between 1.67 to 3.56 times the Seller’s Discretionary Earnings (SDE)
- Assisted living facilities and retirement communities sold between 3.24 and 6.86 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Assisted living facilities and retirement communities sold between 0.53 and 0.56 times the annual net sales on average. Some larger companies ($5M+ in net sales) sold for up to 2.76 times their net sales.
Of course, your valuation goes beyond the rule of thumb. Your business broker also looks at your geographic location, the quality and reputation of your workforce, your reason for selling, and a plethora of other considerations.
Selling an Assisted Living Facility: What Steps Are Involved?
The simplest way to view the sales process for your assisted living center or retirement community is to break it into three stages — planning and preparation, marketing and negotiations, and due diligence and closing. You can expect to break each stage of the sales process into smaller steps as well. Your business broker can work with you to establish an organized and structured plan for selling your assisted living facility or retirement community. Below is an overview of each of these three stages.
Stage 1: Planning and Preparation
Much of the work for a business sale happens upfront before you seek a buyer. This saves you time and helps ensure you quickly find a buyer who is willing to pay fair market value or higher. Proper planning also reduces the amount of time you spend during the due diligence stage and greatly reduces the risk of any major setbacks during negotiations, due diligence, and closing.
Assemble a Sales Team
The first step to take during this first stage is assembling a sales team. If you have not already done so, you will need to find a business broker. Your business broker helps you through every step of the sales journey, from determining your assisted living facility or retirement community’s value to ensuring you are prepared and ready to close the sale. You will likely also need an attorney to help you with all legalities involved with the process. Depending on the size of your company, you may also need a certified public accountant (CPA). Of course, you may already have internal members of the company that can assist (i.e. legal department, accounting department).
The next step is your business valuation, which is discussed above. This involves a market-based approach to determine your fair market value — the amount a potential buyer would likely offer for your company. If your value allows you to accomplish your goals, it is likely time to move to the selling stage. However, if you are not entirely satisfied with your valuation, then your business broker can help you establish a plan to improve its value before seeking buyers.
Also before you sell, you will need to prepare extensively; this saves you time during the negotiations, due diligence, and closing stages. Notably, you will need to prepare your financial, legal, and operational documents. This includes but is not limited to tax returns, profit and loss (P&L) statements, balance sheets, insurance policies, lease information, staff information, and guest information (with respect to confidentiality). You will also need to work closely with your attorney(s) and business broker to develop a sales strategy and timeline.
Stage 2: Marketing and Negotiations
The second stage involves bringing your assisted living facility or retirement community to the market. The goal here is to sell your company in a confidential manner. Private businesses, particularly those within the assisted living industry, should not try to sell publicly as it could disrupt profitability and organizational processes.
The good news is your business broker handles the entire marketing process for you and connects you with prospective buyers who are willing to pay fair market value. They help you with negotiations and contingency discussions as well. It can be challenging to adequately screen potential buyers on your own, and working with a broker ensures the buyer you choose for your company is qualified and allows you to reach both your financial and nonfinancial goals.
Stage 3: Due Diligence and Closing
Once you decide on a buyer to purchase your company, the next step is to complete due diligence. This process is necessary for the buyer to confirm all of the details about your assisted living facility or retirement community. This is also why we prepare before the sale process begins.
By having all of the documents ready to provide upon request, you can significantly reduce the amount of time it takes to complete due diligence, which helps move to closing faster and reduces the risk of deals falling through after the letter of intent (LOI) is signed.
After due diligence, it is time to close the deal. Your closing table may include you (the owner and seller), the buyer, your attorney, the buyer’s attorney, and the business broker. If the buyer is receiving financing, a member of their bank or financial institution may attend as well. Your broker can work with you to ensure you have all of the documents you need for closing, along with answering any questions you have throughout the process.
This stage also involves transferring ownership of your assisted living facility or retirement community to the buyer. Among other tasks, you will need to update your insurance information, provide access to all buildings, information, etc., notify employees, notify patients, guests, and residents (and their families), and more. This may seem daunting, but your broker is there to help you through it all.
Planning Your Exit Strategy? Contact Sigma Mergers and Acquisitions Today
Sigma Mergers and Acquisitions is a business brokerage and consultancy in Dallas, Texas. We help assisted living facilities, retirement communities, nursing homes, and similar business types sell at or above fair market value. Schedule a consultation with our business broker to discuss the specifics of your exit strategy and sales plan.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!