By 2021, Saunders House had reached an inflection point. The standalone nonprofit nursing and rehabilitation center on Philadelphia’s Main Line had been hard hit by the pandemic. Its census was down, inflation was driving costs up, while finding and keeping qualified staff was a constant chore, not to mention continuity of care for Philadelphia seniors. “We had enough money in the bank to last a year and a half,” said Kevin Ross, the community’s recently (semi) retired president and CEO. “But then what?”
After much soul searching, Ross and the Saunders House board decided to put the 180-bed facility on the market—but not any buyer would do. “It was very important to us that we find an established company who knew the Philadelphia area and who had a well-documented record of maintaining operations for the long haul,” Ross said. “We were looking for someone who would write the next chapter for a new and different Saunders House.”
Ross reached out to Laca Wong-Hammond, managing director and head of mergers and acquisitions at Lument. Laca had previously worked with Ross on the sale of another nursing facility, securing proceeds that far exceeded expectations, and Ross had every confidence that she would take the board’s objectives to heart and find a suitor that met its needs.
Ross sat down with Lument to talk about the journey that Saunders House took with Lument in moving step-by-step toward closing as well as the organization’s plans to use the proceeds from the sale to fund a foundation serving area seniors, in effect, extending and amplifying the legacy of Saunders House.
Lument: When it became apparent that Saunders House lacked resources and scale to weather the after-effects of the pandemic, you decided to sell. What gave you hope that you could find an operator willing to take on the challenge?
Ross: There were a number of factors that we felt would make Saunders House appealing to the right investor. The first is the reputation it’s gained over its long history. Saunders House was founded in 1864 as the Old Man’s Home of Philadelphia—its name was changed in 1960 when its charter was amended to include women—and over its 160-year history, it had become a highly-respected local institution, known for its quality of care for Philadelphia seniors and its deep community roots.
It is also a beautiful facility, thanks to the $3.7 million renovation we undertook starting in 2014. We did a thorough top-to-bottom refresh, renovating the dining room and common areas as well as each of the residents’ rooms. Our new front entranceway is inviting and really shows off the beauty of the building.
Its third selling point is its location, adjacent to Lankenau Medical Center, a 370-bed acute care teaching hospital named by U.S. News & World Report as one of the top five in the Philadelphia area. Before the pandemic, we averaged about 65 admissions a month for short-term subacute care, many of them from Lankenau.
When all these advantages are taken together, we felt confident that in the right hands Saunders House would flourish once it fully recovered from the pandemic.
Lument: How did you go about finding that right match?
Ross: Skilled nursing is Lument’s sweet spot, and after some preliminary conversations, Laca and her colleague, Dom Porretta, sent out requests to approximately 30 handpicked companies inviting them to submit a letter of intent. This was in early 2022. Nearly a dozen made offers. Once we had the letters in hand, Lument took the lead, providing a side-by-side comparison of the offers. At the end of the day, there were two that we were very interested in. After doing additional homework, we settled on our final candidate, which offered us substantially more than we had expected.
Lument: In March 2022, the Fed started raising interest rates and continued to rapidly raise rates through the summer and fall, which affected the buyer’s cost of capital and, no doubt, led to some delicate discussions. What did Lument do to make sure you got to the finish line while preserving the advantages of the deal?
Ross: Laca and her team simply would not be intimidated and really held the line. They also made a point of keeping us in the loop. During the course of the negotiations, Laca and Dom were in constant communication with me, the board’s chair, and executive committee. At the same time, we felt that we could go to them with questions or concerns whenever they arose. They worked closely with our legal counsel as well as the buyer’s legal counsel to make sure there were no snags in the process. In the end, we accepted a slight reduction in price, but it was nowhere near what the buyer was asking for, and it was still a much higher price than we had expected when we began this process.
Lument: Because you are a nonprofit, you are expected to put any proceeds from the sale back into the community. Could you tell us a little about the organization’s vision for the nonprofit foundation you are establishing—and how your desire to create a foundation shaped Lument’s negotiations with the buyer?
Ross: Our intention all along was to set up a foundation that would award grants to organizations in our community providing services to seniors, and we are currently getting the foundation off the ground. I feel that Lument was really motivated to put us in the best possible position to make a success of our foundation. That was the reason they held the line in negotiations with the seller on proceeds—and it also shaped their post-closing strategy. Lument fought hard to minimize the amount held in escrow for reps and warranties and to shorten the deadlines for those escrows to be released. They wanted us to have the full value of the proceeds as quickly as possible.
Lument: Now that the transaction is completed, how do you feel about the experience?
Ross: There is a large part of me that is sad that we had to sell, but we all recognized that there was no way that Saunders House was going to survive as a standalone organization. At the same time, many good things came of the deal. As a result of this transaction, the foundation will help us support seniors in new ways while the nursing home can continue its mission of providing care to area seniors. I’m very pleased about the outcome of the transaction—and also pleased about how everything went. Laca and Dom are consummate professionals but also a pleasure to work with. That combination inspires trust, which makes any transaction so much easier. I can’t envision working with a better team.