HJ Sims Represents Thrivemore in Strategic Divestiture and Acquisition
“HJ Sims did a great job in helping advise and coach us through a divestiture and purchase that both happened almost simultaneously – while we still had a business to run. I feel they put us in a position to sell and buy a property at fair prices in today’s market. They were helpful in educating the board and worked well with all advisors on the project. We could not have completed these deals without the support and advice of HJ Sims.”
-Reed VanderSlik, President and CEO
Partnered Right®
Thrivemore is a multi-site senior living organization located in North Carolina with campuses in Winston-Salem, Concord, Albemarle, and Arden. The organization first opened in 1951 as Baptist Retirement Homes of North Carolina.
Thrivemore reached out to HJ Sims in the middle of 2022 after they were contacted by a group offering to purchase their assisted living and skilled nursing community in Asheville, North Carolina (“Western”). Coming out of the pandemic, the Western campus had struggled to rebuild census and used a significant amount of agency/temp labor due to the labor shortage crisis. Given the ongoing challenges, the organization was open to divesting the campus.
Thrivemore initially asked HJ Sims to review the proposed purchase price to determine if it was fair and reasonable. However, they also wanted to maintain a presence in the Asheville market as an organization and asked HJ Sims to review acquisition opportunities in the nearby area. After a brief search, HJ Sims recommended reaching out to the ownership group of Ardenwoods, a 96-unit independent living and 48-unit assisted living community in Arden, North Carolina. This acquisition represented a great opportunity for Thrivemore to trade a struggling health care campus with a stable independent living/assisted living heavy community in the same market. Furthermore, it would allow the organization to “right-size” its unit mix by adding more independent living and removing more skilled nursing. With the transactions, Thrivemore’s overall unit mix would change from 44% independent living and 56% health care to 60% independent living and 40% health care. After reviewing the opportunity, Thrivemore engaged HJ Sims to negotiate a purchase price for Ardenwoods and a sale price for the Western campus.
Structured Right®
Before beginning the negotiation processes, HJ Sims developed valuation models of Western and Ardenwoods to determine the potential value of both campuses in the current market. The HJ Sims not-for-profit and for-profit banking teams worked together to generate the valuation ranges and reviewed recent sales comps, utilizing their collective experience to accurately value the communities.
With the valuation models completed, HJ Sims first began the negotiation process with proposed buyer of the Western campus. HJ Sims found that their initial purchase price offer was too low and did not account for several salient factors, including a valuable cell phone tower lease that provides a significant revenue stream to the owner of the Western campus as well as proposed Medicaid rate increases contemplated by North Carolina. HJ Sims pointed to these factors and discussed the buyer’s assumptions for the financial pro forma of the campus to negotiate for a price increase. Ultimately, the buyer significantly increased their purchase price by over 30% and offered a new letter of intent (LOI) that was executed in late December 2022.
Furthermore, at Thrivemore’s request, HJ Sims reviewed the buyer’s history of owning and operating facilities to ensure the residents at the Western campus would not receive a significant deterioration in quality of care, which was important to the Board and Senior Leadership. HJ Sims reviewed CMS data, the buyer’s recent purchases and ability to close, and spoke with those that had shared experiences with the buyer in the past. Through this research, HJ Sims found that the buyer and operating partner were well positioned to execute on the purchase and represented strong operators.
During the negotiation process for Western, HJ Sims also began discussions with the ownership group of Ardenwoods. The ownership group initially floated a purchase price based on a recent appraisal they received for the property. HJ Sims found that the appraisal was significantly higher than our initial valuation. To determine the cause for the differences in values, HJ Sims offered to walk the ownership group through our valuation model’s assumptions as well as review the recent appraisal. The ownership team agreed and provided a copy of the appraisal. HJ Sims found that the appraisal utilized assumptions that did not reflect current market conditions and pointed these factors out to the owners. After some back and forth, the owners agreed to lower the purchase price by over 15%. The negotiated price would still allow the ownership group to profit on their initial investment, while also ensuring that Thrivemore did not pay a significant premium over the current market. In late January 2023, both groups entered into an LOI for the revised purchase price and began the documentation and closing process.
Executed Right®
While the respective asset purchase agreements (APAs) were finalized in the spring of 2023, the bank and capital markets deteriorated significantly in the wake of the Silicon Valley Bank collapse. Many of the lenders that provided acquisition financing began to pull back from providing loans or required high interest rates and strict covenants. The purchaser of the Western campus faced this challenging market but ultimately received a term sheet to acquire the community. However, the terms required Thrivemore to provide a small seller’s note to complete the sale. Thrivemore agreed to these terms given the volatile market and moved forward with completing the regulatory process over the summer.
Simultaneously, Thrivemore’s legal counsel worked to finalize the regulatory approvals needed for the Ardenwoods acquisition. In the late summer, it became clear that the sale would occur prior to the acquisition by two to three weeks, which would allow Thrivemore to use the sale proceeds towards the acquisition at closing. On September 8th, the Western sale successfully closed. Twenty-three days later on October 1st, the Ardenwoods acquisition closed and Thrivemore assumed operations. As a result of the transactions, Thrivemore added a stable asset with more independent living units, divested from a health-care heavy community, and maintained its presence in the Asheville market.
Financed Right®
With both LOIs executed, HJ Sims assisted with reviewing the legal documentation for both transactions and started lining up the financing for the Ardenwoods acquisition. One of Thrivemore’s goals was to have the sale and acquisition happen within weeks of each other, with the preference to have the Western sale occur first so that these proceeds could be used towards to the acquisition of Ardenwoods. HJ Sims worked with Thrivemore’s legal counsel to set up a timeline to aim for this goal.
HJ Sims began discussions with Thrivemore’s existing lender, First Citizens, early in the documentation process to provide funding for the acquisition. Coincidentally, they were also the existing lender for Ardenwoods, which allowed the bank to quickly get up to speed. HJ Sims worked with First Citizens to set up several financing structures that accounted for the potential of the sale occurring after the acquisition. Ultimately, Thrivemore and First Citizens agreed to a one-year taxable bridge loan that would fund the acquisition and provide working capital. The loan is anticipated to be repaid with permanent debt as part of an expansion financing for Thrivemore’s Taylor Glen campus.
For more information, please contact:
Tom Bowden
804.613.3280
David Saustad
214.909.8588