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AdCare Health Systems, Inc. (ADK) Continues Aggressive M&A Campaign; Acquires Two Skilled Nursing Facilities in Oklahoma

AdCare Health Systems, a leading long-term care provider, just announced that it has inked definitive purchase agreements for two skilled nursing facilities in Oklahoma for a total consideration of $11.6 million. Adding 239 beds in service and an estimated $10.3 million in gross annualized revenues, the transaction is anticipated to be completed in the next 90 days. AdCare said it plans to use traditional bank loans to finance the acquisitions.

“Including the two new acquisitions announced today, we have a total of 12 skilled nursing facilities we expect to close in established markets over the next 120 days,” stated Boyd Gentry, AdCare’s president and chief executive officer. “Together, these facilities have existing estimated gross annualized revenues of $49.0 million, which is prior to our optimization process that we believe will increase sub-acute census and revenues.”

“We are especially excited about the significant upside of our Arkansas expansion, which includes three Little Rock facilities,” he continued. “One of these is a recently fully renovated 157 bed facility that we will open exclusively as a sub-acute facility. Once fully optimized, this facility’s revenues are anticipated to exceed $15 million. This transaction is scheduled to close at the end of this month.”

AdCare’s M&A program is driven by management’s commitment to acquire, develop, and manage facilities where it can leverage operational efficiencies and improve profitability. Staying true to this strategy, the company recently terminated an agreement to acquire or lease 15 skilled nursing facilities in South Carolina, North Carolina, Virginia, and Tennessee that was announced in June of last year. The decision was reached after further due-diligence and renegotiation efforts.

“AdCare will no longer pursue this acquisition as it has become significantly more expensive as consent negotiations with third-party landlords progressed,” commented Gentry. “Although we tried to negotiate suitable terms, we eventually decided it was in our best interest to focus on the other numerous acquisitions we have identified which could quickly take its place.”

The company plans to continue the execution of its aggressive M&A campaign throughout the rest of this year, focused on acquiring facilities that fit within its optimization strategy and have the ability to increase the company’s overall Medicare census and patient acuity.

“Our pipeline of potential acquisitions is as robust as ever, and we are working on several opportunities for owned facilities that we expect to announce soon,” added Gentry. “All of these facilities are within our existing seven state footprints, where we can leverage our existing regional operations teams.”

Combining its current annualized run-rate with transactions in the process of closing, AdCare projects annualized revenue run-rate to exceed $246 million. This would represent an increase of more than 62% over the company’s revenues in 2011, and an increase of more than 8 times revenues since the start of its M&A initiative in the fall of 2009.

“As our portfolio of skilled nursing facilities expands, we continue to focus on cost reduction strategies that improve margins going forward,” concluded Gentry. “We recently lowered our contract therapy costs, are currently leveraging a GPO program for our medical supplies and food purchases, negotiating with pharmacy providers and are in the final stages of outsourcing a large part of our IT infrastructure. We estimate that when fully implemented these cost reduction initiatives will save $4 million annually.”

Chris Brogdon, AdCare’s vice chairman and chief acquisitions officer, added, “Today’s new signing brings the total number of facilities we’ve put under contract to 47 since we began our current M&A program. This transaction also increases the total number of facilities we’ve put under contract to 12 in Oklahoma. With our M&A program and the integration of new facilities remaining our major focus in 2012, we continue to evaluate a number of opportunities that fit our acquisition strategy. And we demonstrated today that we are willing to walk away from those transactions that we discover are not aligned with this strategy.”

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