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Private Equity Investment in Nursing Homes Off to Slow Start in 2022 After Notable Bump

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While private equity-backed health care deals have climbed steadily over the last decade, including in the nursing home sector, that shift may have started to slow.

There were 110 private equity deals in the nursing home/disability care category in 2021 — a considerable bump compared to years prior, according to a Morning Consult report citing data provided by KPMG Advisory Services.

But only 11 SNFs and disability care facilities were purchased by PE in Q1 2022, the lowest number seen in an individual quarter since Q2 2020, according to the data.

This comes as the White House plans to crackdown on private equity investment in the nursing home industry, as laid out in Biden’s nursing home reform package released earlier this year.

The private equity model puts profits before people, the White House has claimed, and with its investment in the health care space ballooning – from $5 billion in 2000 to more than $100 billion in 2018 – its role may be watched more closely by the Department of Health and Human Services and other federal agencies moving forward.

Still, KPMG analysts expect deal making to continue but move at a slower rate in the near term in today’s uncertain environment as 2022 is not expected to yield the “extraordinary” deal volumes, or values, of 2021.

Deal volume overall declined 34% in Q1 2022 after the “exceptional” number of deals in Q4 2021, according to a KPMG report. Overall, private equity buyers made less than half as many deals in Q1 2022 than in Q4 2021.

Russia’s invasion of Ukraine, creating massive uncertainty across the global economy, and rising interest rates may have been part of the reason why investors may be more cautious. Supply chain challenges and higher supply and labor costs have also made the M&A landscape more forbidding.

“Rising interest rates could mean less leverage for private equity investors, which could pressure valuations given return-on-equity requirements,” Ross Nelson, principal and KPMG’s National Healthcare Strategy leader wrote in the report.

Instead of racing to deals, potential buyers are taking their time to “recalibrate” expectations based on the new economic outlook, Nelson wrote.

“We expect private equity and strategic investors to proceed with caution,” he added.

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