The private equity firm gets 65% of a company that combines seven businesses run by the Chicago family.

Private equity firm RoundTable Healthcare Partners said Thursday, May 1, it is buying a 65% stake in American Medical Instruments Holdings Inc., a new business formed to combine seven companies controlled by Chicago's Pritzker family.

Terms were not disclosed, but RoundTable founding partner Lester Knight said the seven healthcare businesses have $130 million in combined revenue.

The transaction is being financed with senior debt at a multiple of 3.75 times trailing Ebitda, Knight said. The senior credit was led by GE Healthcare Financial Services, and included LaSalle Bank, National City Bank, Antares Capital and Wachovia Bank.

In addition, subordinated notes were issued to Wachovia Capital Partners, National City Equity Partners and Antares Capital, among others.

RoundTable, based in Lake Forest, Ill., invests exclusively in healthcare.

AMI Holdings was formed by merging seven independently run medical device companies owned by the Pritzker's Marmon Medical Companies.

Copyright (c) 2003 The Deal LLC

Owners and operators of assisted living facilities are looking for new areas of growth within the industry. A quick market analysis will show such growth can be found in the area of housing and services for Alzheimer's and dementia residents.

However, a traditional assisted living or other senior housing facility would need to make considerable changes to meet the needs of this new population. With construction and an increased staffing demand often comes the need for financing.

Enter the GE Healthcare Financial Services team, who pride themselves on being one of the few groups specializing in lending to healthcare organizations.

Curt Schaller, senior housing team leader with GE, says the current financing market for senior housing is weak, but it's worse for operators of dementia care facilities.

"Construction financing for new projects is virtually non-existent, but there are some viable permanent debt and bridge debt financing options for existing properties," says Schaller. "Operators looking to acquire an existing dementia care facility or add dementia units through an expansion or conversion have a better chance of receiving financing."

Schaller says most facilities considering this growth option should think about adding on to their already established facilities.

"Experience is probably our biggest concern, but others include: the functionality of the building, local competitive conditions and the size of the market," Schaller says. "With freestanding dementia, we focus on the larger metro areas."

"Because of the high staffing ratios, there is a high expense load with a dementia facility. If you are operating in addition to an assisted living community, it is easier to spread those costs out throughout the operation. Financially it makes more sense to develop a larger facility vs. a smaller facility from the pure economic returns."

He says there are additional rewards to both the provider and residents for expanding the continuum of care.

"One of the challenges with Alzheimer's (care) is that you have a tremendous rate of turnover. The higher acuity level, the shorter period of time your residents live in your facility, so you have the constant challenge of refilling those units as people pass away or have to move into a facility providing an even higher level of care."

Schaller says this can make keeping a high occupancy rate challenging.

"Generally speaking, we feel the most attractive senior housing investments are those that provide some level of a continuum of care," Schaller says. "This model provides an internal feeder for your dementia unit and a place for an assisted living resident to move if they develop a condition requiring a level of care best addressed in a dementia facility."

Schaller says an operator can create value by adding a dementia unit to an assisted living property because costs can be spread throughout the operation.

"The synergy an operator gets by running them together can be very powerful," says Schaller. "Because of the high staffing ratios required in dementia facilities, they typically have lower operating margins."

GE recently funded five Holiday Retirement facilities, located in Tennessee, South Dakota, Virginia and Texas. Holiday Retirement is the largest operator of retirement housing the United States; their administrators secured more than $27 million in loans from GE in the deal.

He notes those owners and operators still interested in constructing freestanding facilities should be financially prepared (read: wealthy) for the process.

"Be prepared to bring a lot of cash to the table," he says. "There are very few active construction lenders in the senior housing market right now, and because dementia care is viewed as a specialized niche, it is even more limited for Alzheimer care facilities."

Schaller says his finance team is capable of working with more than just traditional mortgage loan needs. Their team is active in the mini-perm, also known as bridge loan, market.

"GE provides the entire spectrum of finance in the healthcare field," he says. "In addition to our real estate finance programs, we provide medical equipment financing and leasing, cash flow lending and working capital loans."

For operators who are in seeking help on the permanent debt side, Schaller says options include Fannie Mae, Freddie Mac and HUD.

Copyright © 2003 by Virgo Publishing, Inc.