With the recent increase in M&A activity and asset transaction volume comes one of the industry’s most difficult tasks: management transitions.
Management transitions are complex, time consuming, and typically disruptive to existing community operations. What makes them particularly difficult is all the various stakeholders to consider and involve: residents, families, existing staff, new staff, investment partners/owners, legal counsel, lenders, consultants, etc.
Amongst a litany of checklist items to consider during transition, there are two paramount themes that keep management transitions on track: Constant, effective communication and robust, front-ended planning.
Below you will find a thorough (but likely not exhaustive) list of key considerations during transitions.
Pre-Planning
Effective planning pre-transition is a key to success. Devising a roadmap for the months ahead will help avoid future issues, forgotten tasks, or unforeseen circumstances. With a multi-layered project such as this, utilizing a Gantt chart or similar project management tool can be extremely valuable to lay out a timeline, tasks, responsible parties, and track progress. If resources allow, setting a dedicated transition team to spearhead the project will produce better results.
Communication
Transition calls between the existing operator and new operator should start as early as possible and continue regularly during the process. Post-call action items should be clearly defined and assigned to help avoid tasks falling through the cracks.
Regular town halls held at the community with residents/families and both the former and new operator have been very effective in many transitions. The existing operator should notify residents, families, and staff of this transition early on and be available to field questions and concerns. Early and often communication will go a long way with naturally concerned residents and families.
Legal / Licensing / Regulatory
Arguably the most critical step in a management transition is securing the change of ownership approval – often referred to as the “CHOW.” Every state is different, so it’s important to have a handle on the state’s process, requirements, and timeline – a delay in licensing approval could add weeks or even months to a transition. Consultation with expert licensing counsel/consultants is typically recommended to avoid any missteps with the CHOW process.
Rules vary by state, but most management transitions will require new resident agreements and some will require property inspections. Knowing this ahead of time and building it into your timeline will help avoid delays.
It is important to clearly decide on the future name of the community to avoid any conflicts down the line and delays with the license transfer.
Community Operations
- Financial Diligence – The new operator should perform a thorough review of current and historical financials, current year budget vs actuals, capital expenditure history, insurance loss/claim history, etc. Make sure expectations are clear with regard to go-forward budget, occupancy goals, leasing plan, etc.
- Physical Diligence – If necessary, engage third party consultants to perform third party reports or receive and review existing reports (Phase 1 environmental, Property Condition Report, Structural, if necessary, etc).
- Care Assessments – The new operator will need to re-assess all resident’s care levels under their care model. The new model and applicable pricing will need to be effectively documented and communicated with residents/families as it relates to billing. In some cases, the care plan will immediately transition to the new care model, but in other cases residents are grandfathered into the old model.
- Staffing & Benefits – Transitioning staffing and payroll benefits will take time and careful consideration. Many times, managers will seek to retain existing staff members and incentivize them with stay on bonuses. The new operator will need to clearly communicate new benefits (401k, medical, vacation time, etc) to new staff.
- Technology, CRM, Financial and Other Systems – It will take time and coordination to transition all technology, financial, and other systems. Any new staff will need to be properly trained on new systems.
- Emergency Systems and Protocols – The new operator should ensure all emergency systems are working, current on inspections, and that proper protocols and emergency preparedness plans are in place.
- Marketing and Reputation Management – Plan for necessary branding/marketing costs during the transition, especially if the name is changing. Also be clear on what new operator owns and does not own in terms of marketing collateral, pictures, etc. Be sure to scrub online reviews and online presence to be aware of any outstanding reputational issues in the market. Post transition, the new operator will inherit the online reputation of the community.
Even under a “successful” transition, operations will likely go backwards. This should be planned for and underwritten appropriately with regard to leasing and financial performance during the first 6-12 months. Unforeseen items will likely arise, but with the two most important pillars of effective communication and front-ended planning, the team can minimize the likelihood of major issues and delays during transition.