TPG to buy Assisted Living Concepts

The Texas-based private equity firm plans to buy the distressed senior-living operator and its 210 properties for less than half the basis of typical senior housing acquisitions.

TPG Capital has agreed to acquire Assisted Living Concepts (ALC), a Menomonee Falls, Wisconsin-based operator of senior-living residences in the US, for about $278 million.

Under the agreement, shareholders of the publicly-traded company will receive $12 in cash for each share of Class A common stock, while Class B shareholders will receive $12.90 per share. Based on the 20,073,025 Class A shares and 2,897,516 Class B shares issued and outstanding as of February 21, according to a filing with the US Securities and Exchange Commission, this would amount to a purchase price of $278.25 million. That price is only an approximation, however, since Class B shares are convertible to Class A shares, but not on a 1:1 ratio.

The transaction could involve substantial upside potential for TPG, according to one source with knowledge of the deal. Through the acquisition, the Fort Worth, Texas-based private equity firm has acquired 210 senior-living residences – comprising 9,313 units in 20 states – for a basis of $65,000 per unit, whereas most assisted-living properties trade at a basis of approximately $150,000 per unit.

ALC’s properties have an average occupancy of 62 percent – considerably lower than other assisted-living operators, which typically have an average occupancy rate of 90 percent. If TPG succeeds in raising occupancies at the ALC residences, the investment “will be a home run,” the source said.

The main reason for ALC’s underperformance is the poor management of the residences. TPG intends to invest additional capital into ALC to boost staffing and make improvements on the property level. The transaction is expected to close within the next six months, pending affirmative votes from ALC’s shareholders and regulatory approval.